#DeFiGetsGraded We can argue that many decentralised finance (DeFi) protocols are no longer experimental. The underlying infrastructure clearly works, and recent regulatory developments are now making participation suitable for institutions. Tokenised real-world assets (RWA) offer familiar product structures, and permissioned lending pools are now available. But none of this has led to any meaningful capital flows.
Institutional investors, including pensions, endowments, sovereign wealth funds, and insurance firms, are not moving because the legal enforceability of crypto assets and smart contracts is still unclear. Their mandates do not allow exposure to unresolved legal or regulatory risk.
Even though the available DeFi yields may be attractive, the risk-adjusted returns are not compelling enough to make DeFi a core allocation. Nearly all inflows come from asset managers, hedge funds, or crypto-native companies with a much higher risk tolerance.
This is important because the narrative around “Institutional DeFi” is now divorced from market reality. The industry continues to push technical progress and regulatory advancements, however, actual allocations remain negligible, if not entirely absent.
Over the years, inflation, macro uncertainty and geopolitical tensions have certainly created an environment where institutional investors are now looking for alternative yield sources.
But until either fiduciary standards change or legal certainty reaches a baseline that satisfies the institutional herd, DeFi will remain a “sideline” sector of interest, not a legitimate investment case. Institutional capital is simply staying away.