by John Gray
As traditional financial institutions rush to integrate DeFi-native ideas, we unpack the symbiotic relationship between the two systems.
Mainstream finance has started lifting ideas straight from the DeFi playbook. This is most visible in the spread of tokenisation: as a Forbes headline framed it earlier this week, ‘Every Major Bank Is Racing To Put Wall Street On The Blockchain’.
Wells Fargo, for instance, recently said it will offer tokenised deposits to corporate and commercial clients. BlackRock’s BUIDL has become a multi-billion-dollar tokenized Treasury product, and earlier this month, the asset manager expanded the strategy with two tokenized money products. Also this month, JPMorgan said it is providing the blockchain infrastructure for a tokenised US-dollar money market fund launched by Schroders, making Schroders the first global asset manager approved to issue a tokenised share class on the bank’s Kinexys platform.
Alongside the blockchainification of everything, TradFi is also borrowing a set of market-structure ideas from DeFi: composability, in which assets can plug into multiple financial applications; collateral efficiency, in which an asset can continue earning yield while supporting other transactions; continuous, atomic settlement; and interoperability between previously separate systems.
A good example of this is JPMorgan’s Kinexys, which has been demonstrating near-real-time settlement and redemption of tokenised Treasury assets across multiple blockchain networks. The important point is not simply that these assets sit on a blockchain, but that they can settle continuously and be used as programmable collateral. Elsewhere, institutional trading venues are already beginning to accept tokenised Treasury products such as BUIDL as collateral for derivatives and digital asset trading, echoing one of DeFi’s defining mechanisms: posting a yield-bearing asset while continuing to earn on it.
In light of these cascading changes, it feels like a good time to ask: what, exactly, is the relationship between DeFi and TradFi? If DeFi was once dismissed as an esoteric corner of crypto, why are some of the world’s largest financial institutions now adopting its core mechanisms? By a similar token, if DeFi is meant to be an entirely decentralised, permissionless system, what does it mean that fiat-backed stablecoins have become its foundational monetary layer?
The truth is, of course, that the two systems enjoy a symbiotic relationship. One way to think about it is to see DeFi “as both a laboratory and a stress test for the future of finance”, as Jaime Castillo León and Alfred Lehar write in ‘What data have told us about decentralized finance’ (2025), a paper that is simultaneously a primer and a masterclass on the mechanics of DeFi. To explore what that symbiosis looks like in practice, InterSection News recently spoke to Alfred Lehar, Professor at the Haskayne School of Business at the University of Calgary.
Why Wall Street is paying attention
“I think most people still see crypto in general as a speculative asset,” Lehar says, “but that is totally missing the point.” Rather, DeFi should be understood as a new form of trading and settlement infrastructure. Its core advantage is not that it creates new assets, but that it makes moving and settling assets faster and simpler than traditional systems built around layers of intermediaries and back-office processes.
Take equity markets. In conventional finance, cash and securities are recorded on separate ledgers and transferred through a network of brokers, custodians and clearing institutions. DeFi brings both money and financial assets into the same programmable environment, allowing transactions to settle more directly and with less operational friction. This advantage is what the major financial institutions have woken up to. It is not a question of ideology. It’s simply a smoother system. Money, like water, always looks for the path of least resistance.
For Lehar, this is key to understanding the relationship between DeFi and TradFi. More than a parallel, competing system, DeFi serves as a sandbox, rapidly generating new ways of working and thinking that the mainstream system can then scale up. This is why, going forward, we will likely see more DeFi-native processes migrating into mainstream finance.
Beyond blockchain: what DeFi teaches about market design
But there is much more that TradFi can learn from DeFi than just blockchain technology. A core characteristic of DeFi, Lehar argues, is that many problems traditionally addressed through regulation or centralized institutions are instead tackled through private sector innovation. Creativity is essential in a system with no central authority.
A nice example of this was how the issue of front-running was addressed. In the early days of decentralised exchanges such as Uniswap, automated bots would detect a pending trade before it was settled on the blockchain, buy the asset first, and push the price slightly higher. When the original trade was executed, the bot would then sell at a profit. For the trader, the result was simply worse execution; for the bot, it was a virtually risk-free gain extracted from the transaction itself.
Rather than relying on regulation, DeFi developed market-based solutions to the problem. Private mempools, for example, hide pending trades from bots until they are settled on the blockchain, preventing them from jumping the queue. Trading protocols such as 1inch have also introduced mechanisms that make front-running far less profitable by preventing bots from immediately selling back into the price increase they helped create. The take-home, for Lehar, is that governments should not assume regulation is always the best response to a market failure. Before introducing new rules, policymakers should ask whether a private-sector solution could address the problem more efficiently and with fewer unintended distortions.
TradFi can learn from the market structures and technologies that have emerged on-chain, while policymakers can use DeFi as a testing ground to discover which problems genuinely require regulation and which can be addressed through better market design. The result, he argues, could be a financial system that is more effective, more cost-effective, and subject to fewer unnecessary frictions.
What DeFi can learn about money
The flow goes both ways. If TradFi is borrowing DeFi’s infrastructure, DeFi is increasingly relying on TradFi’s money, in the sense that fiat-backed stablecoins are becoming the default monetary layer for on-chain finance. This raises a key question: do they strengthen the crypto ecosystem by giving it a stable unit of account, or do they reintroduce the centralised dependencies crypto was originally designed to avoid? An academic perspective is useful here, not least because it strives to avoid the ideologies that often distort these debates.
In Lehar’s opinion, fiat’s increasing uptake in DeFi is more likely to strengthen fiat than undermine it. “We still have crypto-native assets that will be some sort of competition for traditional finance and prevent countries from overissuing or totally devaluing their own fiat currencies, which is probably healthy to keep governments in line.” Variations in national fiat currencies also reflect the differences in economic activity across different countries. That leads to the broader issue of monetary policy, which is often left out of conversations that focus on the payment side of crypto. One of the lessons DeFi can learn from TradFi, Lehar argues, is that a fixed issuance schedule is not necessarily a virtue. Bitcoin’s predetermined supply may be attractive as a store of value, but it would be a poor tool for managing inflation or responding to economic shocks. “For many people,” he observes, “issuing less is always better, but I think that’s not necessarily true because it creates deflation, and, as we know, deflation is very harmful for the economy.”
This is precisely the kind of question central banks wrestle with constantly: how much money should be in circulation, and what trade-offs exist between inflation, deflation and economic activity? Crypto protocols are increasingly having to confront similar questions, yet the debate remains relatively underdeveloped. There is still considerable room, Lehar argues, “to discuss what kind of objective we want to achieve with our monetary policy”. In short, he wryly notes, “I’m not sure that we are ready for one world currency yet.”
Convergence?
Lehar’s hopeful vision is that one day TradFi and DeFi will merge, giving rise, simply, to “a better system than we have today”. It is not a question of which system will prevail. TradFi is already borrowing DeFi’s infrastructure and market design, while DeFi is rediscovering the importance of monetary policy, stable units of account and institutional trust. The future may look less like a replacement and more like a convergence — a financial system that combines the speed and programmability of DeFi with the stability and robust governance of TradFi.
