One of the key topics at the London Blockchain Conference 2025 was the regulatory alignment happening across the world.
Finally, lawmakers from the USA to Africa, Asia, and beyond are drafting legislation that allows traditional finance to enter the blockchain space.
But as the big banks, financial institutions, and players bring their capital to the table, things will change. Can the two find a hybrid model, or will DeFi simply become TradFi as the big money moves in? Let’s explore.
The philosophical divide: institution vs ideology
Traditional finance, which we’ll refer to as TradFi from here on in, tends to be trust-based, hierarchical, compliance-driven, and risk-averse.
DeFi, on the other hand, aims to be permissionless, trustless, global, and anti-gatekeeping.
In short, one is institutional and the other is ideological. That’s an obvious culture clash, and there’s no easy compromise.
The divide has already been seen in the industry, and the battle lines have been drawn. Protocols like Aave and Compound have experimented with KYC’d institutional pools, and while they bring liquidity, many argue they defeat the purpose of DeFi in the first place.
Despite the apparent culture clash, big lenders aren’t deterred. Marcus Van Abbé, Head of Digital Market Infrastructure at R3, told the London Blockchain Conference that DeFi liquidity is now enough to entice firms off private blockchains nd onto public alternatives.
Regulatory compatibility vs innovation speed
While code is not and never can be law, much of the early innovation in DeFi came from building things and figuring out the compliance later. This obviously won’t fly in a world where major capital from regulated financial firms is at stake.
This raises the question—can the innovation fostered in a “build it now and figure it out later” culture survive if big regulated firms come to dominate capital pools?
That’s highly unlikely. There’s a reason DeFi was able to disrupt traditional lending in the first place—the latter is slow-moving precisely because of the rigid, risk-averse, compliance-first culture of TradFi.
We’ve already seen the effects of this in the relatively small DeFi industry of 2025—Uniswap has delisted assets under legal pressure, Coinbase (NASDAQ: COIN) has positioned itself as ‘on-chain, but compliant,’ and Aave Arc has introduced whitelisting and permissioned access.
While not directly related to DeFi (yet), Google’s (NASDAQ: GOOGL) Strategic Programs Lead, Olena Clayton, said only KYC/AML-verified participants can use its Google Cloud Universal Ledger. It’s not difficult to imagine DeFi platforms owned by the big financial institutions going the same way.
Can hybrid models exist?
So far, we’ve explored the tension between DeFi and TradFi cultures and what they might mean for innovation. However, there are potential solutions that could enable hybrid models to emerge.
DeFi maximalists like to say “Not your keys, not your coins,” while TradFi requires regulated custodians, segregation of client funds, and recovery processes. This is yet another point of tension, but smart contracts and multi-sig solutions could go some way to bridging the gap. A hybrid model may look like tokenized securities stored in regulated digital vaults, but traded on open protocols.
Likewise, there’s an apparent clash between the radical transparency of DeFi and the need for privacy in TradFi—the latter needs trading positions, client data, and strategies to remain private. Zero-knowledge proofs and outsourced computing can help here, but again, there will be trade-offs, and unless the market is big enough, TradFi might decide the reward isn’t worth the risk.
Again, DeFi DAOs promise democratic governance, but TradFi firms answer to shareholders and regulators. It’s unclear how this contradiction can be reconciled, but there have been some attempts to put DAOs in legal wrappers in Delaware, Switzerland, and elsewhere.
And we haven’t even touched on the trust models (code vs reputation), or economic incentives (leverage and speculation vs real-world lending and productivity), but these are just as real as what we have discussed thus far.
Yet, it isn’t all contradictions and clashes. Panelists on the ‘DeFi Meets TradFi’ panel at the London Blockchain Conference agreed that, in many ways, the timestamped records and transparency of public digital ledgers can help with compliance. These features also make it easier to make predictions and manage both positions and risks.
Ultimately, only time will tell if DeFi as we know it can survive the arrival of TradFi, but as CoinGeek’s Kurt Wuckert Jr. once said, as TradFi gets closer to blockchain, blockchain gets closer to TradFi, and that means things will have to change.
Watch: London Blockchain Conference 2025 Highlights – Day 2 Recap
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Source: https://coingeek.com/defi-meets-tradfi-hybrid-models-or-culture-clash/
