JPMorgan Says Decentralized Finance, Tokenization Yet to Meet Expectations

The expansion of decentralized finance (DeFi) and real-world asset tokenization continues to fall short of industry expectations, according to a new report from JPMorgan. Analyst Nikolaos Panigirtzoglou said both sectors remain stagnant following the 2022 crypto winter, with little evidence of a strong rebound or institutional momentum.

DeFi Growth Stalls Below 2021 Highs

Total value locked (TVL) in DeFi platforms remains significantly below its 2021 peak. Activity is still primarily driven by retail and crypto-native users, the report noted, despite the rollout of compliance-friendly infrastructure—such as KYC-enabled vaults and permissioned lending pools.

Institutional adoption, JPMorgan said, has lagged due to regulatory fragmentation, unclear legal status of on-chain assets, and persistent concerns about smart contract vulnerabilities. As a result, traditional financial institutions have largely limited their digital asset exposure to bitcoin (BTC), which remains the preferred entry point.

Tokenization Lacks Scale and Liquidity

The tokenization of real-world assets, including bonds and private securities, has seen incremental growth—but remains well below its potential. JPMorgan estimates $25 billion in tokenized assets are currently active, with $8 billion in tokenized bonds. Despite pilot programs and growing interest in money market tokenization, most initiatives remain small-scale and illiquid.

High-profile projects like BlackRock’s BUIDL fund and Broadridge’s Distributed Ledger Repo (DLR) have shown operational efficiencies but lack meaningful adoption.

“Tokenization in private markets remains highly concentrated, with limited secondary market activity,” Panigirtzoglou wrote.

Transparency a Deterrent for Institutions

The bank also highlighted that public blockchain transparency is often a deterrent for traditional institutions, which typically favor private or opaque trading environments such as dark pools. This preference continues to shape institutional behavior, particularly in equity markets, where off-exchange trading remains dominant.

Even with regulatory progress—such as the SEC’s “Project Crypto” aimed at modernizing market rules for digital assets—JPMorgan remains cautious about future uptake.

“The core challenge isn’t regulatory,” the report concluded. “It’s the lack of a clear use case. Traditional finance has already achieved significant efficiency gains through fintech, reducing the urgency to adopt blockchain-based alternatives.”