Bankless - 66% of Wall Street is Already in DeFi | Paradigm’s 2025 Survey with Dan Robinson & Justin Slaughter

Episode Date: April 24, 2025

In this episode, we unpack Paradigm’s groundbreaking 2025 report, “TradFi Tomorrow: DeFi and the Rise of Extensible Finance,” with Paradigm’s Dan Robinson and Justin Slaughter. We explore the stunning stat that 66% of traditional financial institutions are actively engaged with DeFi—and what that really means. From tokenization and stablecoins to regulatory clarity and decentralized exchanges, this conversation dives deep into how Wall Street is already integrating with crypto. ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain 🌐SELF | PROVE YOUR SELF https://bankless.cc/Self 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🏦INFINEX | THE CRYPTO-EVERYTHING APP https://bankless.cc/Infinex ------ TIMESTAMPS 0:00 Intro 7:10 What Constitutes a TradFi Firm 10:13 TradFi Firms with Defi 12:16 What's Exciting about this Report? 13:53 Stablecoins, Tokenization & More 18:54 Public Blockchains & TradFi? 21:05 “Tokenize The World” Moment? 27:47 TradFi’s Long-Term Outlook 33:19 The Formal Rejection of Private Blockchains 38:31 What’s Left for Regulation &Compliance 45:04 DeFi vs TradFi 48:07 User Value 50:55 Closing & Disclaimers ------ RESOURCES Paradigm Report https://www.paradigm.xyz/2025/03/tradfi-tomorrow-defi-and-the-rise-of-extensible-finance Dan Robinson https://x.com/danrobinson Justin Slaughter https://x.com/JBSDC Paradigm https://x.com/paradigm ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Defi is a concept of something that does not exist in TradFi, which is the idea of permissionless peer-to-peer engagement and networks. That is something that there is nothing that's analogous for in analogous for in analog. Tradfi, they see this as more than just a tokenization machine. They seem pretty open to the whole panoply of what Defi can offer. Welcome to Banklist. We explore the frontier of internet money and internet finance. And today we're exploring a survey done by the Paradigm Policy Team, which investigated exactly where institutions are on that frontier of internet money and finance.

300 Tradfai professionals were pulled by paradigm and asked questions about their engagement level with crypto. Are they just researching or are they actively getting involved? If they are getting involved, how? tokenization, stable coins, leveraging defy infrastructure like dexes and borrowing and lending apps. Why are they getting involved? To cut costs, settlement times, transparency, what motivates their engagement with crypto? And also, my favorite, what are they thinking? about defy. And maybe to tease a punchline, I was surprised by the sheer percentage of Tradfai

companies that consider Defi to be critically important to their business in the future. Dan Robinson and Justin Slaughter from Paradigm are with me on the episode today to go through their report slide by slide. So if you're listening to this podcast, you should know that we are sharing these slides visually on Spotify or YouTube on the video. So if you want to get the full effect of a very bullish report, you should go check that out. But also if you're just out and about listening, we explain it pretty well, so it should work just as well that way as well. So let's go ahead and get right into the podcast with Justin and Dan from Paradine. But first, a moment to talk to some of these fantastic sponsors that make this episode possible. In the wild west of Defi,

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Great to be here. Good to be back. So you guys released this report that you guys called TradFi Tomorrow, Defi and the Rise of Extensible Finance. And this is a report. I haven't done a report episode on Bankless in a while, but I always thoroughly enjoy these. Kind of just giving the sit rep of tradfai's relationship with crypto, their level of interest in it, and what they are doing in our industry. And I think we're going to go through some of the big takeaways and findings and share some of the charts on the screen throughout this episode. But before we get into the nitty-gritty details, I want to just talk about some of the high-level motivations for why this was created in the year of our Lord 2025 and also the methodologies for this document as well.

And so I think we all know that TradFi is very hot on crypto now that we are getting pro-crypto regulation push through Congress slowly but surely. But maybe Justin, I'll throw this to you. Maybe just set the table for us, set the context for the relationship with Tradfai and crypto and what the motivations were for creating this document. Thanks for that, David. Let me know to the start. So I've got to give us disclaimer, to be clear, any partisan views that I or Dan Express are our own today, they're not an official position of the firm. paradigm has experienced republicans and democrats on the team we focus on what's best for crypto not what is best for one party or another with that out of the way here's what drove us to do this report we have seen for the last several years that there's a lot of discussion in tradfai circles but often behind the scenes about defy and we consistently seen a lot of people saying okay but this is all very nice toy you've met especially from dc policymakers but where is the real interest from the traditional financiers clearly if you've built something great they would already

be here. So the fact that they're not shows you that the defy is not as useful as you think it is. We regard that as just utterly fallacious. So we wanted to go actually to the metal and ask trad-fied firms that are interested in defy how interested they are, try to understand exactly what is preventing them from onboarding, and also get a sense of how far they've actually waded into these waters. So we worked with Allium Labs and we surveyed 300 trad-fi professionals that spanned institutions, it spanned roles, it spanned regions, we did banks. We did banks. And, we surveyed banks, we did buy side. And the verdict was pretty unanimous. There is really a surprisingly high amount of interest in crypto and in defy in particular. I think we found two-thirds of trad-fi firms are

actively either experimenting with or researching defy as we speak. Okay, so that was a little bit of the data collected, but there's some nuances with some of the words that I'd like to really parse out here. So especially in that one line, more than two-thirds of traffied firms are currently looking into defy. What constitutes a trad-fi firm? What constitutes a trad-fi firm? What constitutes defy and what constitutes looking into because all of these terms, I think, are pretty squishy. So maybe we could like provide a little bit more color and parameterize each of these terms. So the way to think about this, and you've got the slide out that kind of explains what we did in terms of distribution. So this is global. You can see on the right. It's not quite

majority American. I think if you add in the U.S. and the U.K., it gets to, as well as Ireland, it gets to about two-thirds. We got a substantial amount of participants from other markets. This included asset managers, about a little under a third of the participants in the survey were asset managers, about, I think 20% were retail banks or credit unions. A smaller number were corporate banks. We had iBanks. We had payments companies. We also had VCs and private equity, not including ourselves. And then financial market infrastructure. We can take each of those in turn. Asset managers are the classic by side, things like hedge funds. Retail banks and credit unions, I think, are pretty self-explanatory as our investment banks. That's your classic. more like a Goldman Sachs. Payments companies, you have companies like PayPal, you have companies that are involved in as well. Credit card issuers like Visa and MasterCard. Prioritnequin DECD in D.C, I think,

is pretty simple. That's people who provide basically funding for various financial purchases and financial actions. Infrastructure, that is classically things that are exchanges. It is things like DTCC. It's the various plumbing that makes up the traditional finance space. Okay. And then also, So what constitutes looking into? Because I think that's a pretty easy thing to state from an institution that, oh, yeah, we're totally looking into that without that actually being materially serious. Yeah. And we actually go through.

We did add these questions on crypto as well, but let's go right to defile. Let's cut right to the heart of the chase. We found that this is the way we asked this. So first off, are you engaged at all? And a third said they're not engaged. Then a basically little under a third said they're researching or exploring. this we regarded as not yet engaged in active involvement, not launching or releasing products, but doing analyses, doing strategic planning, possibly to either get involved or maybe to back out.

And then you had a whole lot of rifle shot questions about exactly what they are doing. You'd see them. For some of them, it's building and launching actual products. For some, it is doing pilot programs. Sometimes it's investing, because we see this a lot. A lot of companies that are in Tradfite are trying to get involved by investing in crypto firms or in DFI protocols. This is an entry point in many ways for them because then they can use the things they've invested in. And then there's also a whole host of consortiums.

So that is more or less how we broke it out. And you can see it's pretty evenly divided. It's about 5 to 10% for each of those things across the board. And then the big one, of course, is total engaged, which is 66%, which is the headline for this one graphic. 66% of tradd-fired firms are doing something with defi are totally engaged with defy. Now, I think what you're trying to really land with this slide is you gave institutions the opportunity to really say, yeah, you know, we're researching it. Yeah, we're exploring. And some of them did.

You know, 30% of them did. But the big takeaway here is 66% is like opting to say that they are doing whatever they interpret as total engagement with defy, which is a large number of the highest amount. of like high touch interaction with defy when you guys saw this number what was your big takeaway i might i might interpret that word total as being the total number that said they're engaged rather than that they say that they are totally engaged that's correct it's a width not an intensity okay 66% are engaged meaningfully engaged in some sort of capacity but still the point still stands where you guys gave them the opportunity to say like yeah we're just researching it but then the rest of the people that didn't say that they are doing something more than just

researching is 66%. Was that a surprising number? Was that high for you guys? What was your takeaway with 66% are doing meaningful engagement with Defi? I would say I think this was a very encouraging top line number. I will say, you know, when I first got into crypto back in 2016, I actually was working at a permissioned blockchain startup back when that was a very hot thing. I was called chain. And I think that, you know, back then, if you asked a lot of companies whether they were engaged, I think they would have said they were. But I think if you zoomed in a little on what they were interested in and what they were doing, it was completely separate from what I think anyone in crypto actually was thinking about or was interested in. And so I think actually,

you know, this top line number is great. But if we dig a little deeper into it, it's what really, I think, makes this report very encouraging is that I think the stuff they're engaged in is I think exactly what real, you know, crypto-native defy people would actually expect them, would be excited about or be the things that they would tell them to. Dan, maybe I'll ask just to kind lead with the punchline here. You're a researcher, your mechanism designer in crypto, you're also investor, right? And I mean, Paradigm, Paradigm is a venture capital firm. It would behoove Paradigm to be much more informed about where TradFi is placing their chips in the crypto land as to where to inform where Paradigm ought to invest. What were your big takeaways from this report as a whole?

Like, what got you excited? What really got you going about this? Yeah. So I think one part that I found very encouraging would be if you look at slide 35, that's about what parts of Defi tradfi people were most interested in. And when I look at this, you know, the top ones here, like tokenization of assets, stable coins, decentralized exchange prediction markets, lending and borrowing, interoperability. These are, I think, exactly what I would expect a native, you know, defy nerd like myself. This is what we would be most excited about. I know what we think is currently most successful in crypto.

And I think this other stuff, you know, if you'd ask this question, you know, eight years ago, I think you've gotten completely different answers from banks because I think they would have no idea about what was going on in decentralized crypto and because, obviously, DFI was it as mature at that point. So these are really, these are the things that actually have massive market cap and TVL on Ethereum today, with possibly to the exception of tokenization of assets, because I think that's an area where actually, I think, Tadfai is ahead of crypto and is very interested in, but where, you know, we've sort of only started to see the growth in that. But I think the interest here is, I think, very important.

because that's something that's going to be a huge trend going forward. I want to take these sections one by one, because you guys do break this out into five big sections. The first one, we actually already went through. More than two-thirds of Tradfye firms are currently looking into D5. I'm going to zoom up to page 18 and 19, because I want to focus on these things that this report really emphasizes, which is what TradFi is seeing in the value of crypto.

And you guys emphasize after your learnings, after your reports from Tradfai, that faster settlement times increase to transparency and lower transaction costs were often, as the most important benefits. And to me, that just screams stable coins. And it screams stable coins so loudly that I think I'm actually, you know, you would be remiss to miss the deafening silence that there is around everything else. And if we go back down to the slide that you just pointed out, Dan, tokenization was at the top. And what are we talking about when we're talking about tokenization?

It's stable coins and then treasuries. And so one concern that I have is there's so much emphasis on stable coins by Tradfai that other things that more crypto-natives would find interesting, we'll talk about defy indexes, is actually kind of being left out and ignored, at least for right now. That was my first initial gut reaction. Maybe you could reflect on that or a leave me of my concerns. Well, first I'd say, I think stablecoins is certainly the type of tokenized real-world asset that has gotten the most traction to date on chain. But if you look at that slide 35, actually, I think the Tidefight companies are even more excited about tokenization of other assets. And so there, I think they're talking about assets like stocks, bonds, you know, derivatives, other ways to

basically bring other real world assets or traditional financial assets on chain. I think that's partly because you could get some of the same benefits you've gotten for stable coins from those. And yeah, you know, I'd say I think stable coins are really are incredibly important to traditional finance. But part of it, what they're really excited about here is what this can do for other assets. So, you know, if you don't have anything to trade those stable coins against it's of limited value, but if you can actually do a settlement of multiple assets on a atomically on chain or across

two chains, I don't think you get a lot of benefit from that. So I think they're very excited. And generally, it seems like one of the types of pilot projects that these companies are most excited about is issuing other kinds of assets on chain. I would also note, I was pretty heartened that there's not much drop off between tokenization of assets and then not just stable coins, but decentralized exchange. You can see here that the highest number was tokenization. It was 131 out of the 300. But then decentralized exchange, there's only 122. It was only a drop off of nine. That's pretty good actually, I think signifies that even for TradFi, they see this as more than just a tokenization machine. That, you know, overall, I was

pretty heartened that I didn't get the same kind of breakdown. I thought we would get of where Tradfai is very interested in a very narrow number of uses. They seem pretty open to the whole panoply of what Defi can offer. I think the optimistic case here that I'm just happy to get on board with is stable coins is just the global foot in the door for. the financial system to get comfortable with crypto. And then really the race is on for tokenized equities, tokenize anything else beyond that. We have meaningful amounts of tokenized gold. You're seeing Coinbase stock trade tokenized on base. And I guess that's the optimistic scenario. Is there any indications or any additional color that either of you could provide about more specific

efforts to tokenize things beyond just like dollars and treasuries and put them on chain? There's a panel going on right now at the SEC as we record this on basically how to trade, you know, securities on chain. So I think, and we can discuss this later in the report, a big issue at the moment seems to be the regulatory picture and how much you can tokenize additional assets depends upon regulatory clarity. That said, the lesson of this report is there's a lot of desire for a whole host of additional tokenized products. It's just not clear yet how much you can do before that. regulatory clarity emerges. That said, you can see on slide 36 and 37, we already have, of course, now bonds and stable coins. This is a pretty classic on slide 37 looking, you know, it's the beginnings of an S curve. So I think you can definitely see where there's interest in one thing. It's likely to be

additional interest in others. And slide 37 for the listeners out there is just bonds, tokenized on chain, and it is a just a great looking chart. The peak of the chart is at 130 million. So the, the y axis is not super high, but I think what Justin is alluding to is like, yo, we are in the very beginning stages of a large amount of bonds being tokenized on chain. And I think we understand this empirically. I think from a business perspective, and we'll talk about what else is the policy perspective, which I think is very important. But from business perspective, one of the biggest things to take away from this is the, I think a lot of the demand from traditional finance and the interest is they want to issue things on chain. They want to put assets on chain. And I think it's,

it's largely maybe off to us and the rest of defy to figure out what we can do with them once we have them instead of using them as collateral or being able to trade them more efficiently. Why is that the primary motivation to get assets on chain? What is the selling point for public blockchains to really? Like what properties of public blockchains are we really being able to take to Tradify that imbues the securities that they already have? And what happens when they put them on public blockchains? Like, why is that a selling point? So I remember back again in 2016, trying to talk as a traveling blockchain salesman, trying to convince traditional financial institutions to be interested in blockchains.

when you would talk to people who were a little bit further removed from the plumbing, so like the front office, I think they would think that this was all kind of interesting, but they were like, isn't this just a database? Like, why do I actually need this? And then you would go talk to people working in the back office and working in, you know, reconciliation and various manual processes. And they would all have these horror stories about how insanely inefficient and manual a lot of the traditional financial system plumbing is. And I think that's what we see in this survey is that a lot of the interest comes from, okay, maybe we can avoid the just absurd manual costs of settling, you know, and handling traditional financial instruments.

So that becomes much cheaper to actually just turn out new assets and to settle them and borrow against them and trade them. That's really important because one of the major reasons tried by use technology in general we learned in this survey is to increase efficiency and reduce cost. If you go back to, you know, beginning of, end of part, I think is the very beginning of part one in many ways, slide 11. We asked them why they look at new technologies generically, even beyond defy. And number one and number two, we're investing to improve efficiency and then to reduce manual labor.

We keep forgetting that TradFi is Trad. It is filled with people in analog jobs doing the kind of work you could have seen our parents or grandparents doing in the 80s, 70s, and 60s. And putting aside the normative aspect of employment, that is incredibly slow and incredibly costly. And also, as Dan has taught me over and over again, humans make a bunch more mistakes in smart contracts. So as a result, this is just both reducing your compliance, increasing your cost and reducing your speed. This is all the witches brew that makes it appealing to use technology generically and then defy in crypto specifically. So during my years in crypto since 2017, there has been this like tokenize the world meme that I remember Anthony Pompliano just like tweeting out over and over and over again back and back in the days. Like we're going to tokenize the world.

Everything is going to become a token. And that has been chanted so many times in my brain on Twitter. I've chanted the chant. Other people have chanted the chant. But it's been like five, six years of this narrative being chanted. And we've had conferences, digital assets summits. You know, we've had the panels. And even to this day, like, we are just having some forms of like asset tokenization.

Like stable coin's great. T-bill is great. But like the good stuff, which is like the equities market, still not showing up. at all. And I'm worried about doing that same thing again in this podcast right now, but this also at the same time feels different. It feels different right now. And maybe that's because of the regulatory section of this article. And also what, Justin, you're just talking about going on in D.C. And with the SEC right now is like, oh, no, the reason why we are doing this article, this report, this research report right now is because it is actually happening. We are at the cusp of this

becoming real. And so what was a narrative chant of crypto people for other crypto people primarily is actually turning into some of the TradFi institutions following suit and doing the things of using blockchain to tokenize equities and trade them compliantly on chain using smart contracts. I've heard that so many times. But it sounds like what you guys are saying with this report is like, yes, the stars are aligning. What institutions are interested in are the same things that what retail crypto traders are also interested in and things are actually moving forward in that manner. That's kind of like my summary analysis. Justin, give me your, give me your takes on that. No, I think that's right. I mean, in many ways, right, we had to build out the infrastructure

before they could come, right? If you build it, they will come and that's kind of what's happening here. If you look at slide 23, you can see in here, right, this is the kind of thing we've said as a matter of theory forever, but now it's really true. This is how much lower transaction costs are possible cutting out the middleman and lower infrastructure costs. you can see here the difference between an outbound domestic wire fee, you know, $25, $30, inbound domestic fee, and then you go to the blockchain transaction fee and how low Solana and even how low Ethereum and Base are. That was not going to be possible the same way five or six years ago, right?

We had to come up with the theory to then show the reality. But in addition, I do think part of it is regulatory and understanding there's now a new admin. We set up this report, we started it like last fall, before the election, knowing that either way, there was going to be a new president. And we wanted to take advantage, I think, of both that situation and also get a kind of a reading on where things are at the beginning of that term. But it's also the case that enough has happened in crypto, that you can finally now make the argument cogently inside these traffic companies.

So many times over the last 10 years, right, there'd be efforts by banks or some hedge funds to create their own internal crypto project. And what would consistently happen is people, these young guns off in their 30s, would run up against an existing line of business. And the entity would not want to question it or put at risk that existing line of business from Englandua. They'd go off into a startup. And now enough people have been in crypto, enough has been built, and enough people have shown the way forward that even inside those very large institutions, they are now seeing, oh, this is worth getting involved with. In fact, we want to be so involved, we are now dominant in it. And, you know, we're at the point now where the major issue we can see later in the report does seem to be regulatory and even that's going away.

I agree with Justin. I think the regulatory hurdle has been the biggest and the progress there is a huge factor. I also think scaling has been incredibly important. And if you look at those reasons why people are most interested, you know, it's faster settlement times and lower transaction costs. You could basically hear in that, you know, increased bandwidth, reduced latency. and I think just the fact that blockchains have actually got into a point where we can realistically do very cheap transactions, I think I've made this actually more attractive to financial institutions. I'm daring to ask the timeline on this whole thing.

And I guess it just always collapses down to how fast the SEC can go, which is faster than it's been historically. But what I'm seeing here is this is happening in parallel. The SEC is having their conversation. They are making real progress. Hester Pers is doing a great job. God bless her. And in addition to that, institutions are not like necessarily just waiting. They're actually kind of like tromping at the bit, like more than just researching, but being

actively engaged in all the different varieties that we went through earlier. And so it seems to be like they're not necessarily waiting for the regulatory green light. They're already making inroads kind of like maybe like setting up their pieces for when the game actually starts. But the game hasn't started yet until, you know, there's some bill passed or regulatory clarity from the SEC, but everyone is positioned to start to make real progress very quickly downstream of that. Again, just my take. Justin, maybe check my take. No, I think that's right. I mean, based on what's going to happen, you know, back the story of the last U.S. territory to be settled,

was that of the Oklahoma territory, which traditionally would have been a series of reservations for Native Americans. And literally, when the U.S. government decided to make it open to non-Native Americans, they had people lining up at the border of what became Oklahoma. And then it's certain time of day, the wall, basically the U.S. Army said, okay, you go and they all scrambled in for land. In many ways, that's kind of what we are seeing here. Everyone understands this frontier is about to open up to a lot of existing entities. And I think they all want to be well placed to be part of that initial land grab. You're not going to get there, even with very deep pockets, by just walking up with a checkbook a few weeks into an approval process or regular greenlight

from the SEC, you have to understand the space for you can either build in it or invest in it. And that's in many ways what we think they are working on. That said, and you're moving to a slide I really care deeply about, it is also not the case that this is a light switch. Once we get regulatory clarity, it's not going to be everyone immediately into the pool. There will be a process still. We still have one third of triad five firms saying they are not engaged in defy or exploring it even. But over that very short timeline of five, 10, 15 years, we start to see tremendous understanding from tradfifirms that this will remake how their overall businesses operate.

Yeah, reading these three headlines on 26, 27, 28. In the next one to five years, the majority of respondents think defy will have little impact on their core business. But next slide, sentiment starts to shift looking at six to 10 years from now. And as you lengthen the time horizon, traditional finance starts to think that defy is inevitable. I love those words. defy is inevitable. Defy itself is also squishy, right? Because, you know, there's using Solana Ethereum base to tokenize assets and send them across from person to person. That's use

of blockchain, not necessarily use of defy. To me, like using defy is like, oh, yeah, let's use Avey, let's use morpho, let's use these applications that have financial logic embedded in them, rather than just using the blockchain as payment rails. Talk about that nuance. Justin, are institutions aware of that nuance? And what does using Defi mean to you in this report? We deliberately left this vague because Defi is a concept as much it is a specific use case. And you see that right. And to go back to our favorite slide, probably slide 35, how many different things are discussed? It's not just, you know, dexas. It's also prediction markets. It's also governance and dows. To me, it is, defy is a concept of something that does not exist in Tradfai.

which is the idea of permissionless peer-to-peer engagement and networks. That is something that there is nothing that's analogous for in analog. And within that broader conceptual umbrella, there's a lot of additional, you know, sub-camps basically of the space. So to go back now to what I think your initial question was, which is how much do the respondents understand this, We really tried to, in this survey, delve into their understanding of it. We did use definitions at various times for various concepts.

But I'm a realist. I don't know how much they would distinguish a Solana from a Uniswap, depending on the entity. But in some ways, it's also easy to get lost in the forest for the trees. That they find it appealing as a concept is the most important thing, rather than being fascinated by a particular product. If they only like one specific protocol, that would be a negative sign, I think, because it means they do not see it as something

that is ecumenical and broad, but more about how can I use this one very prosnickety tool? One thing we weren't really asking about, but which obviously I think is bigger than anything right now that's going on in this deck, is about the other direction of, for example, ETFs, and just like just decentralized assets bringing those into the traditional financial system.

I think we've seen just that the interest in that is actually huge, which has been very interesting. But again, I think here we're more interested in talking about what they're interested in doing actually in Defi with their financial institutions. I want to turn to page 41, which is just the four charts, decentralized exchange, volume, and adoption. And this is just Dex Trading and Trading Counts and Checks volumes across Solana base and Ethereum. Some good-looking charts. Salana, of course, the big standout here.

I'm assuming there are meme coins in this Solana chart as well. I think the broader question is do we think that in the future institutions I think are still going to have to get comfortable with dexes they're not just going to ape right into just like trading on dexes they're going to figure out the compliance side there's I'm sure there's a bunch of compliance work to be done to get them comfortable with putting their securities on decentralized exchanges but the broader question is like once we do get that filled out do you think institutions are just going to be using the same dexes that I'm using that you guys are using that we are all using in our day-to-day, whatever we do on crypto rails, like, are

institutions going to use uniswap? Are they going to LP on uniswap? Or will they need some more high-touch, sophisticated tools with some guardrails in order to make them comfortable? Dan, do you have any thoughts with this? Yeah. So I think we can see that, at least right now, I think institutions are getting comfortable with trading on chain, but not necessarily with trading with, you know, with anonymized potential counterparties or with, you know, a pool of many such. So, you know, I think some are, but I think some are starting to dip their toes in with things like Coinbase verified pools, which is this thing that Coinbase launched with Unisop on Unisop before, as Hux on Unitsop before. And the idea there is basically a hook on Unisop before that allows

Coinbase to ensure that only verified actors are participating in this particular pool. And then people who are restricted regulatory from trading with anyone can just trade on that pool so they know that they're trading with each other. I think there's reasons to do that that are regulatory. There's also reasons to do things like that that might be related to market structure. Like, you know, this is part of the logic of dark pools is you might actually want to know that you're not trading against informed traders or HFTs in certain cases. And so I think there will be, there may be cases where there are many different decentralized

exchanges that serve different needs and different participants. But what's nice about defy is these are all basically so interoperable that it's very easy to switch between one and another and liquidity can be traded between them. So there isn't as much fragmentation of liquidity as there is in the traditional financial system. So I think defy will still benefit from having, you know, say, atomic art with pools that are more KYC'd. And then you can actually just get more efficient price discovery on both. So I think you still get a lot of those benefits.

Well, again, the actual Dex market structure itself may be a little more complicated. From my interpretation of your answer, Dan, is that it's not going to be a simple one-to-one. They are not just going to join us blindly in uniswap aping or dex aggregation or all that kind of stuff. But it's also not going to be completely silo either. There's not going to be a forked version of Uniswap. That's KYC only. That's institution only. Often its own little silo.

It's going to be some hybrid combination of the liquidity that the DGens are enjoying. pushing through uniswap, Jupiter, radium, all the ones across all the different chains. There will just be this, like, extra logic built into the smart contracts that allow for the trades to be around the same nexus, but some with the compliance, additional compliance tools, additional compliance gadgets and some without. And it's all going to be about in the same Loki of volume and space inside blockchain. That's my interpretation of your answer. That's my guess.

And I think you just get potentially tremendous efficiency from, for example, being able to do atomic transaction that trades on two of these exchanges, right? So you can do very efficient arbitrage. So in effect, a lot of liquidity is ending up benefiting the whole defythe ecosystem. I think I want to turn to my favorite slide, which is going to be the third section. And this third section is, I think something that we have been asking for for a very long time, which is the formal rejection of private blockchains. TadFi rejects the notion that private blockchains are valuable as public permissionless blockchains are. I think by this age, I don't think anyone at paradigm ever thought that this was true. I don't think this is true. This has been like long

understood by the crypto community that public blockchains are where the value is. But Dan, maybe I'll just ask you like, why is it still relevant in 2025? Is it still taking, convincing of institutions that this is the case? You would be surprised. And I think there are still a lot of projects that are focused on companies, some that have been around since when I was working as a permission blockchain salesman that are working on these. And you know, I don't think those are necessarily going to be irrelevant. But I think it's becoming clear that actually connectivity to these public blockchains and to the liquidity and network effects on them is just the killer thing that was actually needed to make these work. And so I think these private consortia that are saying like, oh, we're just going to have a blockchain between these five banks. I think they're recognizing that actually that closed loop just isn't very valuable and you need to connect to the public system.

I think one thing that really unlocked that is actually the rise of L2s. So first, you know, L2s bring a lot of scale and, you know, other potential benefits for, you know, latency, et cetera. They also allow some kind of customizability that could make them more attractive for a financial institutions. And so I actually think some of the permissioned vision may actually happen. Some of the things people, you know, we were all thinking might happen in 2016. Some of that might come true. But I think it'll happen as an evolution of certain L2s. Like we'll see some L2s come out that are like, this one's going to be, you know,

you can't actually see every transaction on it unless you know, permission. And this one might be KYC only users on this particular L2. But they'll get their value from being connected to this backbone of the Ethereum ecosystem or of other L1 ecosystems. There was a, I'm not going to, won't name names, but there was a recent, like, new layer one launch announcement. And this particular layer one was geared to be institutional friendly via a permission validator set where institutions or, like, large, centralized, trustworthy exchanges were

the validators. And it wasn't a permissionless validated blockchain. So you couldn't just become, like, an eth staker or a salonistaker. It would actually be a permission validator set. Now, I called this on Twitter. I called this, well, this is a permissioned blockchain. that was actually technically incorrect. It's still an open blockchain just with a permission validator set.

So we're starting to make some compromises between the full permission blockchain vision and the full open blockchain vision. But nonetheless, I still think my point landed, which was this is still too permissioned for what we know in 2025, whereas the value of public permissionless blockchains are where the value is. And so, Dan, what's your take on that? Do you think, like, a permission validator layer one is going to make institutions comfortable, or can you actually achieve that same logic in the application layer found on

public blockchains? I think my picture would be I think you can achieve that what they're looking for actually at the L2 layer. But really what they want from the public blockchain, in a lot of these cases anyway, is interoperability. They want connectivity to be able to have assets like Ethan, stable coins and others issued on the Ethereum ecosystem or other assets on Solana. You want connectivity with a particular ecosystem, but you want some control over what happens on your layer. I think that's basically, a lot of that will end up happening either at L2, as L2s or as applications on decentralized blockchains. But I think as an L1, it's very tough, because getting basically this entire ecosystem to come into an L1, it's a very difficult

cold start problem. And I think, you know, these very, a couple decentralized L1s have managed to solve this problem in a way that, this cold start problem in a way that I think will be tough to catch up with. So ultimately, you know, I think we may end up having very centralized L2s that are launching on decentralized L1s. And again, like, you know, that's like roughly how it will work. Whereas I think this, you know, partially centralized L1 compromise, I think might be one that doesn't really satisfy anybody. I'm going to turn to the last bit of this report, which will bring back Justin into

this conversation. The fifth big takeaway from this report, if policymakers are serious about reducing inefficiency in the financial system, it's imperative that they adopt policies that allow firms to build on open public infrastructure. So this is a call to arm saying, I think, look at this report, look at how ready institutions are, look at how curious they are. It's the bottleneck here is compliance and regulation. Now, Justin, I think in today's day and age in 2025, we are getting everything that we want

as an industry from the SEC under Hester Persis leadership under the Crypto Task Force. We just got Paul Atkins confirmed, which is great. But also at the same time, the SEC was already doing everything I think it needs to do in order to unlock the doors for the crypto industry. We have some regulation going through Congress, the Stable Act, Genius Act, one of the two Stable Coin Acts, and then later on a market structure bill. What is left to do?

Because it seems like things are going well. What does it take to further open up that bottleneck that is regulation and compliance? You can think about access to Defi as water moving through a sluice, and there's multiple gates. The first gate is literally to let people who are already in crypto use Defi without fear that they will run afoul of the compliance laws. And that's good and that's great.

But once we get that gate open, and it's been, I'd say, open effectively by the SEC, then you need to open up the last gate, which is to let existing regulated entities, like banks, like hedge funds, like credit card companies, access it as well. And that comes in many cases from other regulators. This is the FDAC. It's the OCC. It's the Fed. And what I will say is we are seeing all of those entities allow existing tradfi entities

access crypto, but by that they are mostly meaning C-Fi. It is not yet the case they are clearly allowing access to defy. We need to have both things. We need to be able to say it's not just the case that you are allowed now to have a Coinbase account, you know, the third bank. It's also that we need to allow you to access AVE or Uniswam or to be able to access and engage with work on a Dow. That is more complicated. It's also the case, right, that on Capitol Hill, most of the legislative action is on CFI still. There's a good reason for that. We have now had every other developed economy do legislation on CFI.

EU did it with Mika, UK, Japan under the Pavement Cablecoin Act, Singapore. We're the holdout. But nobody's done on DFI yet, in part because there's no analog to it. No one has a model for how to regulate D.FITFI like we do is CFI. So it's hard. And I think here at Paradigm, we are definitely nervous that regulating DFI to too soon or could be onerous. The first principle, I think for us,

when it comes to defy, don't do any harm or other do no harm. But at the same time, you have to find a way to let existing firms find a way to access and understand this space because it will never be possible for them to understand how they can use this until they start experimenting with it. So it's going to require more than just the accident of the SEC. But I do think we can get real release of that sluice gate by parts, the Trump administration. Dan, putting your investor hat on, anything in this report that informed you about where to look as a capital allocator? Are you pointing money differently downstream of

this report than you were without this report? I think the biggest update for me, and it's one that it's just sort of clarified, I think, what I'd been, they'd been hints of, is that the biggest interest that they have is in tokenization, which is something, and real world assets. We're just saying that I think has been almost a bit of a punchline for a few years in crypto, non-stable coin real-world assets. But I think the actual tremendous demand from traditional finance to actually put that, start putting those on chain, I think is maybe there is actually big business traditionally in issuing them, but also what can we do with these when they're when they're on chain? So I think it makes, again, it might massively expand the market for decentralized lending and

borrowing, for example, or it might change what kind of decentralized exchanges we want to as what kind of assets we need to be thinking about when it's not just, you know, volatile assets, but maybe, you know, maybe sort of more interesting different kinds of bonds. things. So I think it's, it's made me a little bit more, you know, even more bullish, I guess, on real world assets as a theme. Everybody, I think, knows that stable coins are huge and have been huge and are going to continue growing. But I think that's one where just the pressure from the other side on this is very, very clear in this report. Imagine a world where your day-to-day banking runs on a blockchain. That's exactly what Mantle is building, powered by a $4 billion treasury and

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like Mantle Network, ME, and FBTC. Ready to step into the future of finance, follow Mantle on X at Mantle underscore official and joined the on-chain revolution today. You may have already heard about Infinex. Infinex has, in my opinion, the nicest cross-chain swap and bridge feature that you will find anywhere. It is called Switch, Swap and Bridge, and we're going to show you what it looks like. First, we're going to log into my Infinex account with a passkey. Now, there's no seed phrases in Infinex. This is just a one-cle. click set up with biometric pass keys. But in addition to that, my Infinex account is fully non-custodial. So bam, I just logged in. It was two clicks, and I'm already into my Infinex account.

So let's go make a switch. I'm going to go swidge my USDC that is on base. And I'm going to buy Barra chain, which is a completely different chain. So we're going to switch this. I'm going to press that button. And then Infinex is going to execute this order, this cross-chain order for me. And now it is done. But actually, I'm not really feeling bearish anymore. So I'm going to go from Barra to Penguins. I'm going to buy Penguin. in on Solana. So I'm going from the Barra chain to Salana. See, no transaction signing, no gas to worry about. You just switch across whatever chain that you want with Infinex. That was so easy. Go check out Infinex and try your first switch today. I think downstream of that, Dan,

there's a tale of two cities that can emerge downstream of that. And I'll give you just two different scenarios. Everyone's going to, for a scenario number one, everyone's going to tokenize their assets on Ethereum because it's credibly neutral, is decentralized, all the layer to settle there. Despite Salana having incredible decks volumes, it is still the nexus of activity of defy. And it's just the logical shelling point for people to issue their tokens because of the credible neutrality. It's so incredibly neutral that it's just an even playing ground for all these different asset issuers. That's one frame of mind. Second frame of mind is you don't need credible neutrality. You actually don't need decentralization because we're actually tokenizing

a centralized asset that exists in some centralized bank ledger anyways. And so even though, Solana has compromised on decentralization by in comparison to Ethereum, that tradeoff actually doesn't matter because the tradeoff is already made because there is a centralized asset and a centralized bank account ledger somewhere else. And in fact, that can be the same assets can be issued really anywhere at pretty low cost. Doesn't even matter. Ethereum Solana base, a new layer one that we haven't even learned about yet. It actually doesn't really matter. Which of these two perspectives do you align more with or are they both true? I honestly think that entire frame is just not how traditional finance thinks about it. I think the idea of like, oh, this this solution is more

decentralized so I want to use that or this one is more credibly neutral, so I want to use that. I think they mostly just don't think in those ways. I think they, you know, in crypto, like, it's very natural for me to think of things and making choices that way. I think it's just not even an access for them. And I think the reason that they're excited about public blockchains is not because they are decentralized, you know, they're more decentralized or they're more neutral. It's because they're bigger. It's because this is where everybody else is. So it's really about the size of the economy. And I think the reason why Ethereum has been attractive to these is because Ethereum

has a huge economy right now. The reason Solana is starting to be attracted to them is because I think we've seen a lot more growth on Salana recently. And so they're, okay, they're like, all right, let's take a look at that. And I think, you know, potentially decentralization leads to, to bigness, leads to GDP growth in these ecosystems. But I think it's ultimately the latter that's actually going to attract these issuers. And so I think we should be thinking about whatever it takes to actually grow the size

of the Ethereum economy, if that's what we're trying to make Ethereum more attractive for these issuers, rather than trying to think about in terms of, like, you know, that's maxified compromise or not on neutrality. Turn to slide 43, because we kind of addressed exactly that point

in the end of this report. And we asked them, what is holding the back? And it's things like a lack of regulatory clarity, that was a majority, that's things like concerns about maturity and stability, meaning the scale that Dan references got 126. But like the idea, that it is related to

decentralization is just a misnomer. They just don't think of it that way. Maybe they should, right? It'd be nice if we could fully crypto pill tradfi. It's a better world, I think. But it's asking them to understand the doctrine of the religion before they've been baptized.

Okay, so the real North Star is users, economic activity, GDP growth of these respective economies, which I think are just numbers that are totally comprehensible and familiar to these entities doing this analysis to begin with. That's right.

And I will say, I think if Ethereum has a big edge apart from that, I think it might be on stability, where I think if they're pitching, you know, like that, that's at least what I've, heard from, you know, like when, when corporates and financial institutions are thinking about Ethereum versus Solana, one of the knocks on Solana is, I think, just, you know, downtime, I think, and just concerns about whether the throughput on that could scale as well as it could if they just, like, launched their own two, where I feel like they'd have much more control. They could sense that they'd have much control over the infrastructure than launching on that.

So I think, you know, there's different kinds of pitches that protocols use, but ultimately, I think really the big one is just size. Guys, this has been incredibly informative. There's a ton of stuff left in this article and this report. So it is linked in the show notes for listeners to go and take a peek themselves. Before we wrap this up, though, Justin Dan, are there any stones that I have left unturned that we should explore anything exciting that I have forgotten to ask about? I'll just kind of open it up to you guys.

You've done your job very well. I mean, what I think I would really underscore is the degree to which this should make clear to everybody, not just tradfi, not just crypto, not just policymakers, everybody, is that defy is yet another killer app in crypto. It is in demand. People want to access it. People who are worried they will be left behind, some of the most powerful financial firms in the world want access to this. If that's not yet another blaring fire signal about the importance of crypto and how much is it going to change the world, I don't actually know what is. The other thing I was going to say is we often glanced over this. For a lot of our questions,

we ask, how important is this? And we didn't just say, not at all, moderate or very important. We also added the word critically. Critically is one of those words that comes up in finance, more in private than in public. It means this is so absolutely important. It's almost necessary. And one thing I was surprised over and over again, especially in the slides about the future of D5, so like back says this is like slide 28 is how much about 28% of respondents thought defy will be critically important to their business 15 years that is incredible that is them saying we understand this is going to be our business in not very long so if you are not yet focused on the importance of defy i think this really underscores it some of the most potent and well-resourced

and competitive firms in the world see the value of this, and they're probably coming very soon. Dan, maybe you could put on your entrepreneur hat. What would an aspiring young builder, what ought they take away from this? If they are interested in building the next billion dollar application or billion dollar protocol, if you were, take us back in time to win your 22 and you have all of the builder energy in the world, what do you build with this knowledge in this report? Yeah, shamefully, you're probably right that I've lost some of that energy. Gosh.

You know, I think figuring out what to do once all these assets get on chain, I think is probably the most important thing. And I think, honestly, what comes to mind for me is I think lending and borrowing protocols, decentralized lending and borrowing protocols are just actually a huge attraction of these tradfai professionals who want to go into this. But like most of our existing protocols, I think are not really built to handle an influx of just an arbitrarily large number of assets. And I think, you know, like just Dow governance is not going to handle this. You're going to need something else for that. So that's where I think I would go. How would we actually set up a decent lending protocol that can handle just arbitrarily many real world assets? Awesome.

Justin, Dan, I have learned quite a lot. Thank you guys for putting this report together. I think it's a service to the entire industry. And thank you for coming on bankless to help us to spread the good gospel that crypto is ready for institutions. And institutions know it. They know it. And they're ready to go. Thanks, Kevin Assan.

Our pleasure. Happy Friday. Bankless Nation, you guys know the deal. Crypto is risky, but not too risky for institutions because it sounds like they are on the way. but nonetheless you can lose what you put in. This is the frontier. It's not for everyone, but we are glad you are with us on the bankless journey. Thanks a lot.