By embedding institutional-grade performance and risk management directly into protocols, we bridge the gap between tradfi and defi.By embedding institutional-grade performance and risk management directly into protocols, we bridge the gap between tradfi and defi.

Institutional crypto needs adoption to scale beyond speculation | Opinion

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial.

Mid-October 2025 saw crypto’s largest liquidation event in history, with $19 billion wiped out in 24 hours, after what many believe was a response to President Trump’s announcement of potential substantial tariffs on China. This revealed a critical structural flaw: the fragility of liquidity when it is needed most. For an industry that constantly touts institutional adoption as its north star, it exposed how little real, resilient infrastructure there is when it matters. 

Summary
  • The $19B liquidation exposed crypto’s core weakness: liquidity vanishes under stress because market makers are not protected or incentivized to stay active when volatility spikes — a rational response to fragile infrastructure, not a moral failure.
  • “Institutional adoption” is mostly cosmetic: balance-sheet holdings ≠ usage, and current on-chain markets remain thin, concentrated, and experimental (e.g., a handful of traders drive most volume), making them structurally unfit for real institutional participation.
  • The path forward is engineered trust, not hype: embedding risk management, compliance, and resilience into protocols (via cryptography, governance, and regulation) is what turns decentralized tech into scalable financial infrastructure.

Market makers — the professional traders who quote buy and sell prices to keep markets functioning — are supposed to provide stability during volatility: quoting through volatility, absorbing panic selling, and providing exit liquidity. In practice, most venues reward them for being present 95% of the time, but not for staying when the knives are falling. 

While it is important to scrutinize market makers’ actions during high volatility and liquidation pressures, their absence is often a rational response to a broken system. In an environment where platforms lack operational resilience and adequate backstop mechanisms, staying active during a liquidation event may be a fool’s errand. We cannot expect market makers to act as safeguards if the infrastructure itself offers them no protection.

Real adoption requires what every functioning financial market provides: settlement guarantees, protections for users’ deposits, platform reliability, and well-reasoned incentives, particularly under stress. This allows liquidity providers to stay the course. Moreover, it’s not about who holds the assets, but who actually uses the rails. Holding Bitcoin on a balance sheet doesn’t constitute adopting crypto technology any more than owning gold bars makes you a miner.

And right now, the numbers do not yet match the promise of programmable money and decentralized networks being used en masse by institutional entities. Take Hyperliquid, a premier decentralized exchange. Since May 25, 2025, daily active users (unique addresses trading at least $1K notional) for major Bitcoin (BTC) and Ethereum (ETH) pairs have averaged 11,423. Around 50% of that volume was driven by an average of just 37 users. These numbers illustrate that without a better market structure, these innovations will remain lab experiments rather than scalable financial systems.

The path forward requires building the infrastructure that enables institutional participation and adoption. The CME Group handles three billion contracts worth approximately $1 quadrillion annually as part of the overall holistic risk management that protects users through due diligence requirements, anti-money laundering and sanctions compliance procedures, and audit trails. These requirements, when tailored thoughtfully to the needs of the business or product, build trust that allows, for example, teachers’ pension funds to invest alongside hedge funds.

The good news is that we now have the blockchain technology tools to bridge the gap between the safety/usability of traditional finance and the innovation of decentralization.

Innovative cryptographic solutions 

New blockchain technologies can now embed risk management directly into the infrastructure. Smart contracts can enforce risk management rules automatically, while Trusted Execution Environments (TEEs) and zero-knowledge proofs allow for the verification of credentials without exposing sensitive data. These tools enable the kind of oversight institutions require while preserving the efficiency and transparency benefits of blockchain technology and cryptography.

Decentralized governance and regulatory clarity 

We are already seeing this shift from theory to practice. The 2022 Ooki DAO enforcement action caused token holders to think more critically about whether they can participate in governance due to potential legal or regulatory uncertainty and potential personal liability. New cryptographic functionalities are now available to help move the industry forward in a way that can ease those concerns and increase governance and user adoption. Decentralized governance can incorporate risk management frameworks, allowing institutions to participate.

Regulatory bodies are beginning to recognize that risk management and decentralization are not mutually exclusive. Recently, the Bermuda Monetary Authority granted the first-ever license to a DAO-governed derivatives exchange. This approval sets a vital precedent: it proves that non-custodial, decentralized platforms can operate within recognized regulatory frameworks while ensuring users maintain total independent control of their assets and private keys.

We have the technology to meet institutional standards. As seen in the U.S. with the passage of the GENIUS Act legislation, innovation flourishes when paired with thoughtfully tailored rules of the road. Real adoption won’t come from hype, corporate treasury holdings, speculation, or artificial metrics. It will come from the quiet, essential work of building infrastructure that financial institutions can actually trust.

If market structure remains fragile, liquidity will remain fleeting. Instead, we must engineer resilience into the platform itself. By embedding institutional-grade performance and risk management directly into protocols, we bridge the gap between the traditional and decentralized markets. This is how we fulfill the technology’s promise of creating a safe and efficient global system that is open to all.

Aditya Palepu

Aditya Palepu is the co-founder and CEO of DEX Labs and a former algorithmic trader at DRW.

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