a16z: TradFi is Not Embracing DeFi Models, But Accelerating Adoption of Blockchain Technology

On July 14, a blog post was released stating that as traditional financial institutions accelerate their exploration of blockchain technology, there is a widespread belief that the future will see a comprehensive integration of DeFi (Decentralized Finance) and TradFi (Traditional Finance), forming a new financial model through the combination of decentralized finance and institutional distribution systems. However, the reality may not be so straightforward. The core motivation for traditional financial institutions to adopt blockchain is not to embrace decentralization, but to leverage its commercial value in reducing costs, enhancing settlement efficiency, expanding distribution channels, and optimizing customer relationship management. What is more likely to emerge is a new type of "programmable financial infrastructure" based on underlying blockchain technology, optimized for institutional needs, rather than a simple merger of traditional finance and DeFi.

Institutions are selectively absorbing certain technological capabilities from DeFi and modifying them according to their regulatory, risk management, and operational requirements. For example, atomic settlement can reduce counterparty risk, shared ledgers can lower back-office reconciliation costs, programmable funds can automatically execute interest payments, margin management, and corporate actions, and automated market-making models are being applied to on-chain foreign exchange and tokenized asset pricing. However, at the same time, the native DeFi characteristics of open access, anonymity, and trustless execution often conflict with institutions' requirements for compliance, control, and accountability. Therefore, cases such as JPMorgan's institutional blockchain project, BlackRock's, and Franklin Templeton's tokenized funds are essentially not traditional finance entering DeFi, but rather using blockchain technology to improve existing financial business processes.

In the future, the blockchain industry will have two development paths: on one hand, enterprises and financial institutions will continue to promote the implementation of blockchain infrastructure that meets regulatory requirements, expanding the industry scale through applications like stablecoins, tokenized assets, and on-chain settlements; on the other hand, open networks will continue to play the role of innovation sources, continuously generating new financial primitives and market mechanisms, providing technical reserves for future institutional infrastructure. TradFi and DeFi are not in competition but are developing together in different directions. Traditional finance may not fully adopt the DeFi model but will gradually adopt parts that suit its own needs. The real integration may ultimately occur at the underlying blockchain network level, rather than one side replacing the other. For developers, the key is not to chase all markets simultaneously but to clarify the target audience: for institutions, products need to be built around compliance, risk control, and long-term business processes; for open networks, there is a need to continue exploring innovation, liquidity, and network effects. The future financial system may operate on blockchain infrastructure, but the most important innovations may still come first from open networks.

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