How Public Blockchains Will Catalyze Institutional DeFi Adoption

The tokenized asset market is set for explosive growth with Boston Consulting Group forecasting it to reach $16 trillion by 2030. Public blockchains are becoming central to institutions’ abilities to bring traditional financial assets on-chain, by delivering not only operational efficiency but also enhanced security, verifiable trust, and revenue-generating opportunities. While many are fully open and permissionless — allowing anyone to view transactions, build applications, and participate as validators — others incorporate permissioned elements that provide compliance and controlled participation within the same open network.

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Yet a key question remains: which type of blockchain — public or private — will pave the way for institutional mass adoption?

Emerging regulatory frameworks, such as the EU’s Markets in Crypto-Assets (MiCA) and Singapore’s Payment Services Act (PSA), are providing much-needed clarity. Historically, private blockchains have been the go-to choice for institutions, serving as secure and compliance-friendly sandboxes. However, their restricted and siloed nature limits participation, leading to low liquidity, inefficient price discovery, and volatility for otherwise stable assets. With increased regulatory clarity, decentralized blockchains, like Ethereum or Solana, will likely become the favored path for institutions.

Public blockchains: triggering a DeFi domino effect with institutions

Leading firms such as BlackRock and Franklin Templeton are already embracing public blockchains by bringing regulated traditional financial assets, like tokenized money market funds, onto public blockchains, which is already leading to significant capital flows into DeFi. And over the next five years, we should also expect to see additional financial assets, such as private equity, to move on-chain, further accelerating institutional adoption.

By moving these assets onto public blockchains, these institutions are benefiting from greater transparency and interoperability, which streamline processes and enhance market integration. The 24/7 intraday settlement allows for more efficient capital flow management, without the constraints of traditional trading hours. For investors, these tokenized assets represent low-risk, high-quality liquidity with lower barriers to entry and better availability, making them an attractive option that brings more stability to blockchain-based markets — ultimately supporting broader adoption for DeFi.

Beyond operational efficiency and compliance: exploring revenue and liquidity opportunities

Public blockchains may look to offer compliance features to address operational and regulatory challenges faced by traditional financial institutions. Those could include mechanisms like clawback, which allows issuers to reclaim assets under specific circumstances, and freezing, which restricts accounts from sending or receiving funds to ensure regulatory compliance. Additionally, decentralized identity (DID) solutions provide secure on-chain identity verification, supporting know your customer (KYC) processes.

Source: EY-Parthenon, Gaining Ground: how institutional investors plan to approach digital assets in 2024

But adopting public blockchains also opens up new revenue opportunities through enabling global market access through fractionalization, allowing institutions to engage a broader investor base and boost trading volumes. An emerging use case is the collateralization of tokenized assets, which facilitates borrowing and leveraged trading to improve capital efficiency. Real-time, on-chain collateral management offers faster liquidity and more flexible asset deployment compared to traditional systems.

As public blockchains offer a path to a more productive financial system — the question is no longer whether institutions will adopt them, but how quickly this transformation will unfold. One thing is clear — this shift is not just redefining finance; it’s laying the groundwork for DeFi to become a fundamental part of the global financial markets.

Public blockchains can serve a similar role to that of the open, public internet, which improved upon closed networks and enabled global connectivity, innovation and growth. With their open architecture and unrestricted participation, public blockchains are set to transform global finance and enable an Internet of Value.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.