How security and compliance can bring institutions to DeFi

Talk about a buzzword—decentralized finance, or DeFi, gets thrown around a lot as the next big thing set to shake up how money works. And yeah, the core ideas—open access for everyone, transparent transaction trails, new ways to earn—are pretty exciting. But if DeFi wants to break out of its current (though growing) crypto corner and become a real player in mainstream finance, it needs to convince the institutions, the big-money players, to jump in. Those institutions? They like DeFi’s potential, sure. Who wouldn’t be interested in new efficiencies and bit returns? DeFi’s “trustless” setup, where smart contracts replace intermediaries, sounds great, but it can also look risky from their perspective. They see the massive potential, but they also see the news flashes about hacks, stolen funds, and fuzzy regulations. Regulatory clarity will be a big driver for further institutional adoption of DeFi tech and investment and the US is looking to lead the way. Binance CEO Richard Teng was interviewed recently by UAE based publication The National while speaking at the Token2040 conference. Teng discussed his recent meeting with US officials about upcoming regulations: “The new efforts and optimism is very real in the US. So, I believe the US is going to come out with very enlightened, pro-industry and smart regulations that support the industry but also manages the risk at the same time. So you’re probably going to see some of the new legislation coming through by August this year.” For DeFi to really attract that next flood of serious capital, tightening up security and getting onboard with clear compliance rules isn’t just helpful—it’s absolutely critical. Big investors are already testing the crypto waters (including DeFi) Don’t get it twisted—institutional money is already dipping its toes into crypto, and DeFi is definitely catching their eye. We saw a huge sign of this back in March 2025. That’s when MGX, a big tech investment firm from Abu Dhabi, dropped a massive $2 billion into the cryptocurrency exchange Binance. That wasn’t just pocket change; it was the single largest investment ever in a crypto company, and notably, Binance’s first institutional investment—all paid in stablecoins. That headline-grabbing deal isn’t the only proof. Check the numbers from BitcoinTreasuries on May 7, 2025: institutional players are now holding over 12% of the total BTC supply. And a 2024 report from PwC and AIMA found something interesting: nearly half (47%) of the traditional hedge funds they surveyed were already dabbling in digital assets . That’s way up from 29% just the year before. Plus, a third of those already planned to put more money into crypto by the end of 2024. It seems they’re getting savvier, too. The same report showed traditional hedge funds are increasingly using derivatives (up to 58% in 2024 from 38% in 2023) rather than just buying crypto directly. On top of that, the arrival of regulated spot Bitcoin and Ether ETFs, especially in the US, has been a game-changer. These ETFs pulled in over $44 billion globally in their first year alone, giving institutions a familiar, regulated way to get involved. You also see big banks like Goldman Sachs , JPMorgan , and Citi experimenting with putting real-world assets like bonds onto the blockchain. The interest is definitely real. But DeFi needs to clean up its act for the next big leap Okay, so the interest is there. But for DeFi specifically to grab a bigger share of that institutional money, it has to tackle some major issues head-on, mostly around keeping funds safe and playing by the rules. Let’s be frank: the decentralized finance space has been a bit like the Wild West when it comes to hacks and exploits. Massive losses, like the $1.4 billion Bybit hack (caused by weak transfer security and risky ‘blind signing’), make institutions think twice, maybe three times, before parking millions in DeFi protocols. The constant worry about smart contract bugs or validator mistakes leading to theft is a huge deterrent. It’s not just about preventing theft, either. The regulatory picture is still pretty murky and inconsistent globally. As the lawyers at Guha PLLC noted, different US agencies often have conflicting ideas about how rules apply, creating “treacherous waters” for anyone trying to stay compliant. Institutions need clear, predictable rules. They need to know they’re dealing with platforms that take AML and KYC rules seriously—things that DeFi’s open-access nature doesn’t always easily align with. Building that institutional trust is job number one. DeFi platforms can’t just be built for crypto wizards; they need user interfaces that make sense for traditional finance pros. Things like integrating solid blockchain analytics tools to monitor transactions in real-time and flag shady activity are essential for AML compliance. New ideas are popping up too, like intent-based architecture, which tries to make transactions safer by default—reducing risks like MEV exploitation (where bots front-run trades) and making sure deals only happen when everyone’s conditions are met. The potential payoff is enormous. Analysts at the Boston Consulting Group think the market for tokenized real-world assets could hit $16 trillion by 2030 , and DeFi could be central to that. If DeFi players truly want to see those institutional billions flow their way, they have a clear to-do list: make security ironclad, demystify the compliance journey, and create user experiences that sophisticated financial firms expect. Pulling that off won’t be easy; it’ll need a real team effort from the tech folks, the regulators, and the institutions. But getting this right is how DeFi moves from being just “disruptive” to being genuinely safe and reliable for everyone. The post How security and compliance can bring institutions to DeFi appeared first on Invezz

Source: Invezz