The growth of Decentralized Finance and tokenization remains disappointing: JP Morgan | CoinDesk JAPAN

• According to JP Morgan, the recovery of Decentralized Finance remains sluggish, and the total value locked (TVL) is still below the highs of 2021.
• Mr. Nikolaos Panigiltzoglou and his team stated that despite the increasing interest and use cases in the repo market, bond market, and short-term financial market, tokenization has not yet expanded.
• JP Morgan pointed out that traditional finance has not embraced blockchain because existing systems are providing speed and efficiency without increasing risk or transparency.

According to the report, the Total Value Locked (TVL) in Decentralized Finance remains below its peak in 2021, and most of the activity is still driven by crypto-native users and individual users.

Mr. Panigirtzoglou pointed out that despite the development of compliance-oriented infrastructure such as permissioned lending pools and KYC-compliant asset custodians, the adoption by institutions has been slow.

There are still significant barriers remaining. Analysts stated that institutions are facing regulatory fragmentation, legal uncertainties surrounding on-chain assets, and concerns about the security of smart contracts. As a result, the majority of cryptocurrency activities by institutions are still concentrated on Bitcoin (BTC).

Tokenization is also struggling to achieve results. Tokenized assets are valued at $25 billion (approximately ¥3.625 trillion, based on an exchange rate of ¥145 to $1), and tokenized bonds amount to $8 billion (approximately ¥1.16 trillion). Although there are increasing instances of implementation in money market funds, this sector shows some progress, most initiatives remain small-scale, illiquid, or in experimental stages, JP Morgan noted. Notable efforts like BlackRock's BUIDL and Broadridge's Decentralized Ledger Repo (DLR) platform lead to improvements in efficiency, but are insufficient in terms of scale.

Mr. Panigiltsoglu pointed out that tokenization in the private market is concentrated among a small number of players, and there is little activity in the secondary market.

According to the report, many traditional investors maintain a skeptical stance, particularly considering the transparency of blockchain. Transparency can be a disadvantage for institutions that prefer opaque trading venues such as dark pools. The continuous increase in off-exchange stock trading indicates that this is favored.

Despite regulatory efforts such as the SEC's "Project Crypto", Mr. Panigirtzoglou questioned whether merely changing the rules could overcome more serious issues. The issue is that traditional finance still does not feel a clear need for blockchain.

The report stated that fintech has already improved the speed and efficiency of existing systems, and the urgency for the introduction of tokenized alternatives has decreased.

| Translation and Editing: Rin Hayashi | Image: Christian Dubovan/Unsplash ｜Original: Decentralized Finance and Tokenization Growth Still Disappoints: JPMorgan