Institutions are embracing cryptocurrency, but practitioners are unusually frustrated. Who will ultimately win?

Author: Gu Yu, ChainCatcher

Unlike previous bear market cycles, the crypto industry has entered a strange state of fragmentation in the past 1-2 years, with completely different emotional states between TradFi institutions outside the industry and DeFi, public chains, and investors within it, raising many questions among industry observers.

On February 23, Austin Federa, co-founder of DoubleZero, posted on X, stating that never before have institutions and enterprises been as enthusiastic about cryptocurrencies as they are now. Meanwhile, crypto natives seem to be trapped in an endless cycle of depression.

Indeed, the adoption of crypto by traditional financial institutions has reached unprecedented heights, with asset management giants like BlackRock launching cryptocurrency ETF funds, payment giants like Visa and Mastercard fully embracing stablecoin settlements, and gold, silver, and stocks being tokenized and listed on crypto exchanges like Coinbase and Binance. More importantly, the regulatory environment continues to improve—advancements in the U.S. Market Structure Bill and the full implementation of Europe’s MiCA provide institutions with a clear "ticket to entry."

Even the Chinese government has recently introduced groundbreaking policies regarding RWA. On February 6, 2026, the People's Bank of China, along with eight other departments including the National Development and Reform Commission, issued a notice that clearly defines "tokenization of real-world assets (RWA)" for the first time and establishes a dual-track framework of "strictly prohibited domestically, strictly regulated abroad." The China Securities Regulatory Commission simultaneously released regulatory guidelines, opening a compliant filing path for tokenized asset-backed securities based on legally held domestic assets issued abroad.

So why, after institutions have truly entered the market on a large scale, has the crypto industry not felt the prosperity and confidence that the market previously expected? According to Dean Eigenmann, co-founder of Markets, Inc., this can be traced back to the compromise-based adoption path of crypto.

Dean Eigenmann stated that many who adopt the Web3 framework genuinely believe that a more moderate positioning can accelerate its popularity, and reaching a compromise with regulators can create space for the maturity of cryptocurrencies.

"The problem is that catering to the existing understanding of institutions is not a neutral act. When you reshape language to cater to regulators and attract institutional capital, you are not merely translating; you are negotiating, and you always sacrifice the parts they dislike the most first. In the case of cryptocurrencies, the key lies here: the relationship of confrontation with centralized power."

Thus, what ultimately emerges is not true adoption but absorption. When BlackRock launched its Bitcoin ETF, it did not follow the logic of decentralization but extended the logic of traditional asset management to a new underlying asset. Custody rights belong to them, access must go through their infrastructure, and price discovery is controlled by them. In this case, Bitcoin is no longer a peer-to-peer electronic cash system but merely a stock ticker.

The unsettling fact is that it is not institutions that have actively chosen cryptocurrencies, but rather cryptocurrencies that have actively catered to them and been reshaped by them. Every compliance framework, every licensed custody solution, and every regulated access channel is a concession cloaked in the guise of progress.

The market has also rewarded these concessions, as it does not price based on ideology. It only prices for liquidity, access, and regulatory clarity, which are precisely what the institutional framework provides, but all at the cost of sacrificing the original uniqueness of cryptocurrencies.

These issues have led Dean Eigenmann to realize that the initial mistake of the Web3 era was measuring success by the number of people using the technology rather than by what the technology creates for its users. A financial system serving 50 million people who cannot access traditional banking services is more aligned with the original vision than one serving 500 million people who merely choose new services because they like the new brokerage interface.

Notable venture capitalist and founder of Crucible Capital, Meltem Demirors, also offered a similar perspective: traditional finance has captured most of the benefits of the crypto economy. Previously, Meltem Demirors worked for over a decade at CeFi companies like DCG (the parent company of Grayscale) and Coinshares (the largest crypto asset management company in Europe).

"If you track the flow of funds, it is clear who the winners in the crypto space are: not DeFi protocols, but the financial companies that Satoshi aimed to replace in the Bitcoin white paper." Meltem Demirors said, "Every year, traditional financial institutions extract billions of dollars in assets and profits from the crypto economy—often more than the economic benefits generated by the protocols that initially created value."

Take Bitcoin ETFs as an example: asset management companies charge management fees, brokers charge access fees, market makers earn spreads, and custodial banks charge custody fees—the entire profit chain occurs almost entirely within the off-chain financial system. The value captured by on-chain protocols is minimal.

Similarly, the growth in the market size and adoption of stablecoins has further reinforced the settlement power of payment networks and banking systems, rather than the revenue models of DeFi protocols themselves.

In her view, the only way out is to establish and develop the industry's own native institutions—on-chain asset management companies, risk management firms, and underwriters—these institutions can compete for the management scale of treasury assets and design products that serve the long-term interests of cryptocurrencies, while retaining more economic benefits within the crypto ecosystem instead of draining them to boost corporate profits.

"'Institutional adoption' is not a mission but a strategy for extraction. If we do not prioritize cooperation with native crypto institutions now, 'institutional adoption' will not be a victory but a takeover," Meltem Demirors said.

Conclusion

For TradFi and Wall Street, this is not a decentralized experiment but an expansion of a new asset form—a "new asset class" that can be incorporated into the existing compliance system, can be custodied, can be securitized, and can be distributed. This is a phased victory.

However, from the perspective of fund flows and profit distribution structures, the real beneficiaries are often not DeFi protocols but asset management companies, custodial banks, brokers, and market makers.

This resembles a highly efficient institutional absorption: Crypto provides growth narratives and technological innovation, TradFi provides capital, regulation, and distribution networks, and then takes away most of the cash flow and profits.

Embracing is not inherently a bad thing. But if the crypto economy ultimately only retains the role of "technical outsourcing" while losing value capture and discourse power, then this embrace is closer to "harvesting."

Now that the large-scale entry of institutions has become a reality, the real question to focus on next is to what extent Crypto should adopt and cater to the game rules of TradFi? How can Crypto ensure that native protocols and infrastructure capture more users and cash flow?