DeFi Faces Increasing Competition from Regulated Exchanges and Bank-Backed Clearinghouses

The recent trend of Wall Street adopting on-chain transactions has created a competitive landscape that is no longer focused solely on the possibility of moving finance online. Instead, the question now centers around who will capture the capital once it does move onto blockchain.

Regulated exchanges and bank-backed clearinghouses have been making significant strides in offering 24/7 trading and settlement capabilities, which are often accompanied by the same capital treatment as traditional assets. This has created a $330 billion on-chain capital pool that DeFi platforms must now contend with.

The composability of DeFi protocols, which enables interconnected financial products to be built on shared infrastructure, is seen as its key advantage. However, this advantage can only be realized if institutions believe the surrounding controls are mature enough to contain localized failures.