Author: Yogita Khatri

Compiled by: Shenchao TechFlow

Shenchao Guide: For a long time, traditional financial (TradFi) giants have limited their engagement with cryptocurrencies to equity investments or pilot projects. However, recent actions by giants like BlackRock and Citadel in purchasing governance tokens such as UNI and ZRO have sent a strong signal.

This article delves into the deep logic behind this transformation: it is not merely asset allocation, but rather to secure the usage rights of future on-chain financial infrastructure.

With the clarity of the compliance environment and the improvement of token tools, DeFi tokens are evolving from 'soft governance' to functionalities similar to 'on-chain equity', marking the onset of a structurally transformative change driven by institutions.

The full text is as follows:

Traditional finance (TradFi) institutions are no longer merely collaborating with the crypto industry; they are directly purchasing governance tokens.

In just a few days at the beginning of this month, BlackRock, Citadel Securities, and Apollo Global Management successively disclosed plans to purchase DeFi tokens or related acquisitions. BlackRock introduced its tokenized treasury fund BUIDL on-chain via UniswapX and purchased UNI tokens; Citadel Securities supported LayerZero's 'Zero' blockchain launch and acquired ZRO tokens; Apollo or its affiliates reached an agreement with Morpho to acquire up to 90 million MORPHO tokens over 48 months, accounting for about 9% of the total supply.

For years, large financial firms' exposure to cryptocurrencies has largely been limited to equity investments, venture rounds, or pilot projects. Direct ownership of tokens is very rare.

So, what has changed? Most investors I interviewed indicated that rather than a massive bet on DeFi tokens, it is about ensuring access to the infrastructure.

'Each company is purchasing tokens for specific protocols they intend to use as infrastructure. This is vendor alignment, not portfolio allocation,' said Jake Brukhman, founder, managing partner, and CEO of CoinFund. In other words, token exposure is tied to the infrastructure these companies plan to use, rather than based on a broad belief that 'governance tokens are a new asset class.'

Investors indicated that the focus is on distribution and product strategy rather than asset allocation.

TradFi firms are tokenizing their products for on-chain distribution. These products require DeFi venues, and purchasing the protocol tokens they rely on 'is largely symbolic, but it does establish some consistency and brand halo,' said Lex Sokolin, co-founder and managing partner of Generative Ventures. He added, 'Unless the purchases are massive, this is unlikely to change market dynamics, but that is not the goal of TradFi. They are selling us products, not buying products from us.' He noted that TradFi firms are 'factories,' while cryptocurrencies are 'stores' selling tokenized products.

Investors generally believe that DeFi itself did not undergo a fundamental shift overnight. Rather, it is that the infrastructure has matured, and regulatory transparency has improved over the past few years.

'In the past 12 to 24 months, custodial and operational infrastructure has improved significantly,' said Lasse Clausen, founding partner of 1kx. 'The tools around holding and using tokens, control, and governance are better than before, making it more feasible for large compliant institutions to hold tokens directly.'

Regarding regulatory transparency, Amir Hajian, a researcher at crypto investment firm Keyrock, mentioned several announcements. The (Employee Accounting Announcement No. 121) (SAB 121) abolished accounting requirements that had previously imposed high costs on many public companies in crypto custody. The Securities and Exchange Commission (SEC) concluded its investigations into companies including Uniswap, Coinbase, and Aave without taking enforcement actions. The (GENIUS Act) created a federal framework for stablecoins. Additionally, the SEC's 'Project Crypto' introduced a four-tier token classification system, which Hajian said 'released signals that most governance tokens are not securities.' Meanwhile, several investors stated that the (CLARITY Act), which may pass, is another regulatory positive for which TradFi companies are preparing in advance.

Structural shift or symbolic gesture?

Most investors stated that these TradFi moves represent a real structural shift in how institutions engage with cryptocurrencies, rather than merely symbolic bets. Others believe the reality lies somewhere in between, while a few still view it as primarily strategic positioning.

'I believe this is structural,' said Richard Galvin, executive chairman and chief investment officer of Digital Asset Capital Management and former executive at Goldman Sachs and JPMorgan. 'Companies of this scale do not allocate capital lightly. After 20 years in traditional finance, I am well aware of the internal governance, risk, and compliance hurdles required to approve such investments. These are prudent strategic decisions, not symbolic gestures.'

Nonetheless, scale remains important. Some investors noted that, based on disclosed information, these allocations are still relatively small compared to institutional balance sheets. Anirudh Pai, partner at Robot Ventures, stated, 'Before governance tokens occupy a meaningful proportion of assets under management (AUM) or become part of core strategy, it is too early to call it a structural shift; the market may have projected stronger confidence than what actually exists.'

Governance tokens vs. equity

Are we entering a 'New Meta' where governance tokens begin to play a role more akin to strategic equity?

Most investors indicate that it is not the right time yet, but the industry seems to be moving in that direction.

Investors pointed out that tokens still do not have legal recourse against the protocol's assets, do not impose fiduciary duties on holders, and remain subject to regulatory ambiguity. They stated that for governance tokens to truly act as strategic equity, a meaningful shift toward shareholder-like rights and clearer value capture mechanisms is necessary.

'If governance can truly control cash flow or meaningful economic leverage, it can operate like strategic equity,' said Boris Revsin, partner and managing director at Tribe Capital. 'If token holders can influence fee switches, treasury usage, or protocol direction in ways that affect the economy, then the analogy starts to make sense. But in most cases today, rights are still 'soft.' Legal enforceability is limited, and governance is often more social than contractual. If institutions expect strict enforcement, clearer regulatory treatment may be needed. Situations like the Aave governance debate show how chaotic this can get.'

Dragonfly partner Rob Hadick stated that after the passage of the crypto market structure bill, he expects to see new token designs that look more like 'on-chain equity.'

Why hasn’t the token price experienced substantial volatility? What needs to change?

These TradFi initiatives are significant, but the price reaction has been tepid. Most investors stated that the muted response reflects a simple reality: the market was weak at the time of the announcements, risk appetite was low, and Bitcoin was under pressure.

More importantly, token economics have not changed overnight. 'Currently, seasoned holders often do not react until economic benefits are truly realized in the protocol,' said Samantha Bohbot, partner and chief growth officer at RockawayX. Pai agreed, believing that if there is no lasting connection between protocol cash flows and token holders, the response will be muted— and indeed it has been.

More broadly, even if protocols demonstrate robust revenue and total value locked (TVL), DeFi tokens still lag in performance. Why does this disconnect persist? 'It's a paradox,' noted Brukhman of CoinFund, 'most DeFi tokens historically have had little revenue capture ability. Value has flowed to liquidity providers (LPs) and development teams, rather than token holders, while ongoing venture capital (VC) unlock timelines create sustained selling pressure.' He said, 'Institutional funds entering in 2025 require cash flow proof before allocating, selectively buying (BTC, ETH), instead of broadly rotating into DeFi. The fragmentation of L1/L2 further dilutes the value capture of any single protocol.'

Several investors stated that clear value capture is key.

'We need to see protocols open clear 'fee switches' and value capture for their tokens, while issuers also need better disclosure and lower inflation,' said Thomas Klocanas, managing partner at Strobe Ventures. 'Regulatory positives like the (CLARITY Act) are also expected to help attract ongoing capital, while institutional inflows further accelerate this process by providing liquidity and validation.'

Brukhman added that aside from fee switches, the VC unlock timeline must slow down, revenue must scale to support fully diluted valuations (FDV), and regulatory transparency around token status must improve so institutional allocators can hold without compliance risks. 'The biggest potential catalyst is the approval of DeFi ETFs: Grayscale AAVE -2.66% and Bitwise.' he noted.

Dragonfly's Hadick stated that regulatory restrictions have so far hindered the establishment of a clear and direct relationship between protocol revenue and token prices. With the passage of the Market Structure Act, he expects this connection to become more apparent.

Meanwhile, Pratik Kala, research director and portfolio manager at Apollo Crypto (unrelated to Apollo Global Management), stated that many DeFi tokens still seem 'overvalued' from a price-to-earnings (P/E) perspective. Without naming specific projects, he noted that some operate similarly to traditional banks but have P/E ratios as high as 80 times. 'The market will find balance at some point,' he said.

Governance capture risks and potential hazards

The increase in institutional participation raises a natural question: will this lead to a concentration of power?

Several investors indicated that this risk is real, while others believe that professional governance participation can enhance discipline and long-term orientation.

Hajian of Keyrock stated that today's larger governance issue is not concentration, but 'apathy.' He noted that voting participation in DAOs is often in single digits. He added that institutional participants tend to have much higher voting rates in traditional markets, which can raise oversight levels and improve proposal quality.

As for what issues these TradFi actions may encounter, regulation remains the biggest risk. Several investors warned that the current regulatory environment is dependent on the government. If policies reverse or classify revenue-sharing tokens more aggressively as securities, it could force institutions to retreat or require protocols to become more 'permissioned.'

'The future SEC chair may reclassify governance tokens with fee switches as securities,' Hajian said. 'The (CLARITY Act) regarding market structure has not yet passed (although the likelihood is high).'

'We must make (the CLARITY Act) happen!' Brukhman said.

Will more TradFi companies follow suit?

Most investors expect more TradFi companies to purchase DeFi tokens, but they will be very selective, focusing on blue-chip protocols.

The prevailing view is that future purchases will be linked to product strategy rather than speculation. Companies that are already building tokenized products or on-chain infrastructure are considered the most likely next actors.

Pai indicated that Fidelity Investments, Franklin Templeton, Goldman Sachs, and JPMorgan may allocate positions where they align with their settlement or liquidity strategies. Hajian noted that Goldman Sachs, BNY Mellon, Franklin Templeton, and Cantor Fitzgerald are potential next participants. Klocanas mentioned JPMorgan, Morgan Stanley, Fidelity, Franklin Templeton, Janus Henderson, and Visa as candidates. Brukhman speculated that Fidelity, Franklin Templeton, and State Street could be potential actors, while JPMorgan is more likely to build rather than buy tokens.

On the protocol side, investors indicated that activity will be concentrated on large protocols with strong liquidity related to stablecoins, tokenized real-world assets (RWA), and trading infrastructure. Given Aave's scale in the lending space, institutional integration, and evolving value capture mechanisms, both Hajian and Brukhman mentioned it. Other names mentioned include Maple Finance for institutional credit and Sky and Ethena in the stablecoin space (according to Klocanas), while Brukhman pointed to Sky and EtherFi.

Although these moves are mostly tied to strategic partnerships or working relationships, Hadick stated that he ultimately expects TradFi firms to 'invest in DeFi protocols without clear strategic ties.'