a16z Crypto says the familiar story about decentralized finance and traditional finance converging into a single hybrid system gets the market wrong. Its argument is simpler: if blockchain technology helps existing financial businesses run better, institutions will use it. They are not doing that because they have accepted decentralization. They are doing it because the cost-benefit case works.
In the article, the firm says institutions are not “merging” with DeFi. They are selecting the parts of crypto infrastructure that fit their operating constraints, stripping out the parts that do not, and reassembling the rest in a form that suits institutional requirements. What emerges, it says, will look neither like legacy finance nor like DeFi in its current form. Instead, the market is moving toward a new category: programmable financial infrastructure running on blockchain rails but optimized for institutional constraints.
The piece adds that this balance could shift as regulatory frameworks mature. Legislation such as the CLARITY Act may eventually make it easier for institutions to connect directly to permissionless systems. Even then, a change in law would not instantly reset institutional risk tolerance. According to a16z Crypto, institutions still assess technology through the same filters: cost, risk, control, and operational fit.
What traditional finance is actually adopting
The article says an institution will usually adopt a blockchain-based component only if it meets two tests at once. First, it has to improve cost, risk, or distribution. Second, it cannot break control and accountability. Features that get rejected — open access, anonymity, and immutable execution — may pass the first test but fail the second.
That makes institutional adoption more predictable than random, the article argues. For founders, that pattern can function like a design test. If a feature creates value only by taking control away from the institution, it will most likely be modified or turned down, no matter how elegant the design may be.
a16z Crypto runs through several examples. Atomic settlement removes the time gap between trade execution and final settlement, reducing counterparty risk and freeing collateral tied up in unsettled transactions. Shared ledgers can shrink one of the largest hidden costs in financial back offices: reconciliation. Programmable money can automate coupon payments, margin calls, and corporate actions in code rather than through long chains of manual instructions.
The article also says AMM curve math, once separated from a permissionless wrapper, can become a pricing engine for on-chain foreign exchange and net asset value calculations tied to tokenized money market funds. Each of those components can improve some line on a profit-and-loss statement or remove an operational risk and its cost. None requires an institution to adopt decentralization as an ideology.
Why JPMorgan, BlackRock, and Franklin Templeton are not “trying DeFi”
a16z Crypto is explicit on this point. JPMorgan’s permissioned chain for institutional deposits, along with tokenized money market funds from BlackRock and Franklin Templeton, should not be described as enterprises testing DeFi, the article says. They are using blockchain technology to do what they already do — interbank payments and settlement, fund subscription management, and distribution of yield-bearing products — through a better set of rails.
Those deployments use blockchain properties such as programmability, transparency, and atomic settlement. At the same time, they deliberately leave out the features that native DeFi relies on, including open access, anonymity, and trustless execution.
In a16z Crypto’s framing, that is neither failure nor compromise. It is a deliberate architectural choice, and one that says a lot about the direction the market is taking.
Institutional buyers do not evaluate crypto like crypto-native users
The article argues that it is a mistake to think institutional adoption simply opens a bigger distribution channel for existing DeFi infrastructure. Institutions do not assess protocols the way crypto-native users do. For them, the decision looks more like selecting software vendors and infrastructure partners. They examine operational risk, compliance controls, and long-term ownership of critical systems, then run those questions through internal procurement processes.
That means success in DeFi does not automatically convert into success with institutional clients. Companies, the article says, rarely buy the best technology in the abstract. They buy the technology that fits existing workflows, risk models, and procurement realities.
a16z Crypto places blockchain in a broader pattern seen in other technologies. The internet went through enterprise firewalls and intranets. Cloud computing went through private cloud deployments, virtual private clouds, and FedRAMP certification. AI is going through on-premise deployment, data residency, and model governance. Blockchain, the article says, will be reshaped by heavily regulated, risk-controlled environments in much the same way.
Two forces are shaping blockchain for institutions
The first is compliance. The article lists KYC, anti-money laundering checks, sanctions screening, investor accreditation, and regulatory reporting as non-negotiable requirements for most institutions. Permissionless systems do not naturally support those demands. Institutions also need the ability to freeze assets, reverse transactions, and identify counterparties.
DeFi was not originally designed around those needs, the article says, and satisfying them often requires meaningful architectural change. That may loosen over time. a16z Crypto notes that measures such as the CLARITY Act could eventually let institutions access permissionless systems while still meeting regulatory requirements. For now, though, most institutions still focus on control, accountability, and operational risk when they assess blockchain infrastructure.
The second force is enterprise value delivery. The article says this is often underestimated. Institutions are not adopting blockchain because they believe in permissionless finance. They are adopting it because it can compress costs, reduce reconciliation friction, open new distribution channels, or let them sit more deeply inside the customer relationship. If a product cannot express its value in that language, it may not even make it through procurement.
Stablecoins are presented as the clearest example. Banks, payment companies, and fintech firms increasingly view them as useful settlement infrastructure because they let dollars move faster across networks and geographies. Very few are embracing the ideals of permissionless finance. They are using programmable dollars because they work, not because they want to rebuild finance around DeFi principles.
The article points to Circle’s Arc network as an example of how blockchain infrastructure is being packaged for institutional buyers: with emphasis on compliance, operational control, credible counterparties, and integration with existing workflows, rather than on permissionless access and composability. What Circle is selling in that model is not “permissionlessness” itself, the article says, but faster settlement, global reach, and better capital efficiency in a form institutions can actually use.
SWIFT appears in the same frame. Its work on interoperability for tokenized assets is not aimed at replacing financial institutions, according to the article. It is meant to help existing institutions collaborate more effectively through the SWIFT network. The same pattern keeps appearing: blockchain adoption is reinforcing established financial networks rather than displacing them.
Two opportunities for the industry, but not usually one company
a16z Crypto says the industry has two opportunities, not one. The first is helping institutions adopt infrastructure they are ready to use now. Each component they take on — atomic settlement, programmable money, tokenized collateral — helps validate the technology, improve shared rails, and bring real transaction volume and capital on-chain. The second is continuing to build open, crypto-native financial systems that institutions are not yet ready to use.
Those paths do not have to compete. The article says they can exist in parallel and may strengthen each other if both succeed. Open networks will keep generating new components, markets, and experiments. Institutions may later adopt the results. If convergence eventually happens, it will happen naturally through growing dependence on the same underlying infrastructure, not because one side absorbs the other.
At the company level, though, the article says trying to chase both paths is usually the wrong move. Selling to institutions requires fluency in procurement, compliance, internal controls, channel partnerships, and long sales cycles. Building for open networks requires optimization around developers, liquidity, composability, and network effects. The customer, the distribution strategy, the product requirements, and the definition of success are often completely different.
That does not make one market better than the other. It means founders need to know clearly which market they are serving, while remembering that both may be linked by a common rail: public blockchains acting as neutral settlement layers.
How teams can build institutional blockchain infrastructure
The article describes two routes into this emerging category of programmable financial infrastructure: build from scratch, or adapt existing products.
On one side is Canton. a16z Crypto says the network did not try to retrofit existing DeFi infrastructure. It was designed from the start around institutional demands for privacy, compliance, and controlled interoperability. Its goal is not to pull banks into DeFi, but to let them use blockchain-based coordination while preserving the governance, confidentiality, and operational control they require.
On the other side is Morpho. The article says Morpho did not abandon its DeFi-native components. Instead, it focused on making them easier for institutions and asset issuers to use. As an example, it points to Apollo’s ACRED fund, which has incorporated Morpho into its on-chain lending strategy, combining a DeFi-native lending component with institutional-grade distribution, compliance, and fund structure.
In that model, the resulting product is neither pure DeFi nor a fully isolated institutional stack. It is a selective institutional repackaging of existing crypto infrastructure around demands for control, compliance, and distribution. The article presents this as a distinct category built for institutional constraints: informed by DeFi, but operating in a more permissioned and compliant form, and therefore different from anything already in the market.
a16z Crypto adds a caution. Teams like Morpho that successfully adapt crypto-native infrastructure for institutional use cases do exist, but founders should not treat that path as the default. Institutions are a separate customer segment with their own requirements, and in many cases a product designed around those requirements from day one will work better than one retrofitted from an open-network product.
Why open networks still matter
The article closes by arguing that the innovations institutions are using today did not originate inside banks, asset managers, or legacy financial infrastructure. They came from open networks, from environments where founders could experiment freely with new market structures, coordination mechanisms, and financial components. That distinction matters because institutions are not the primary engine of innovation in crypto. Permissioned layers often sit downstream from open ones.
That leads to a broader strategic point. If the entire industry shifts toward selling only to banks and asset managers, it risks mistaking one large customer segment for the full opportunity. Traditional finance is an important customer, the article says, but not the only one. Designing for institutional needs is a valid and valuable path, yet it is only one lane, not the whole road.
The advice is direct. If a team is building for institutions, it should commit fully, learn the customer, understand procurement, and design deliberately around institutional requirements rather than assuming crypto-native traction will carry over. If a team is building for open networks, it should keep going rather than dropping its vision because institutions are the loudest buyers in the current market.
a16z Crypto’s final position is that TradFi is not adopting DeFi as a whole. It is selectively adopting the parts that fit its own model. The opportunity for founders is not to chase every market at once, but to decide which market they are building for and execute accordingly. Even if parts of the future run on institutional infrastructure, many of the components that matter most are still likely to emerge first from open networks.