Behind Galaxy Digital and SharpLink's $125 Million DeFi Fund: Why Are Institutional Funds Embracing DeFi Again?

Author: 137Labs

I. Why Did a Seemingly Ordinary Fund Partnership Attract Such Widespread Attention Across the Entire Crypto Market?

In May 2026, Galaxy Digital and SharpLink announced the establishment of a $125 million Institutional Onchain Yield Fund. After the news was released, while the fund's size is far from being considered historically large in the crypto industry, the level of discussion it generated in the market significantly surpassed many larger financing events.

Because what truly matters has never been the "$125 million" itself, but rather:

Wall Street institutional capital is, for the first time, systematically introducing corporate-grade ETH Treasury into the DeFi yield ecosystem.

The crypto industry has experienced several distinct development stages over the past few years.

From 2020 to 2021, it was the "retail financial experiment" phase of DeFi Summer. Numerous protocols attracted funds through extremely high APYs, with the market's core logic being:

· High Yield

· High Leverage

· High Risk

· High Volatility

DeFi during that period resembled more of an on-chain capital frenzy.

But after 2022, following the collapse of Terra, the FTX implosion, the liquidation of Three Arrows Capital, and multiple major protocol exploit incidents, the entire market's perception of DeFi began to shift.

Institutions gradually realized:

DeFi is not merely a simple "high-yield casino." Its true significance lies in:

It creates an on-chain capital market independent of the traditional banking system.

By 2025 and beyond, as ETH ETFs, stablecoins, RWA, Restaking, L2 networks, and on-chain treasury markets matured, institutions started reevaluating a question:

If future financial activities increasingly migrate on-chain, could the on-chain yield market become a new global capital allocation system?

The partnership between Galaxy and SharpLink essentially emerged against this backdrop.

This is not as simple as a publicly traded company casually "buying crypto."

It represents:

Corporate Treasuries shifting from "passive crypto holding" to "active on-chain asset management."

This is also a crucial indicator that the entire crypto industry is truly entering its next phase.

SharpLink: A Company Evolving into an "ETH Version of MicroStrategy"

In this partnership, SharpLink's role is highly symbolic.

Many media outlets have already begun referring to SharpLink as:

"ETH Treasury Company"

The logic behind this is strikingly similar to Strategy's (formerly MicroStrategy) BTC model.

Over the past few years, through continuous BTC accumulation, Strategy successfully fostered a new perception in capital markets:

Public companies can hold Bitcoin as a reserve asset.

SharpLink is now attempting to replicate this logic for ETH.

However, ETH is fundamentally different from BTC.

BTC resembles a digital gold, with its core value derived from:

· Scarcity

· Inflation resistance

· Long-term store of value

ETH, on the other hand, possesses more complex economic attributes.

It is simultaneously:

· Blockchain network fuel

· Smart contract settlement asset

· On-chain collateral

· Core asset in DeFi interest rate markets

Additionally, it is also a type of:

Internet-era financial infrastructure capital capable of continuously generating yield.

This is why an increasing number of people are starting to view ETH as:

"The internet treasury bond of the digital age."

SharpLink previously primarily earned yield through ETH Staking.

However, as industry competition intensified, relying solely on Staking could no longer meet the capital market's demands for yield and capital efficiency.

This is why SharpLink began exploring:

· More proactive on-chain yield management

· More complex capital strategies

· More institutionalized DeFi yield systems

In essence, SharpLink is transitioning from:

"A company that holds ETH"

to:

"A company that manages ETH capital efficiency."

And this may well become the direction for many future ETH Treasury companies.

Galaxy's Role: Bringing Wall Street Risk Controls into DeFi

If SharpLink represents "corporate on-chain capital," then Galaxy represents:

Wall Street's attempt to take over the asset management layer of DeFi.

Galaxy's greatest significance lies not in its capital scale, but rather:

It seeks to embed the institutional risk control frameworks of traditional finance into the on-chain yield market.

Over the past few years, DeFi's biggest problem has never been insufficient yield.

On the contrary, DeFi's biggest issues have always been:

Unsustainable yields and unquantifiable risks.

For retail users, high APY itself is attractive.

But for institutions, what truly matters are:

· Risk exposure

· Volatility control

· Counterparty risk

· Fund liquidity

· Asset transparency

· Compliance

What Galaxy aims to do is gradually transform DeFi from a "retail high-yield experimental field" into:

A chain-native financial market capable of supporting institutional-grade capital allocation.

Therefore, the significance of this fund is not merely "generating yield."

The more crucial aspect is:

Galaxy is attempting to establish a new industry role:

Onchain Asset Manager

In the future, this role may resemble entities in traditional finance like:

· BlackRock

· Apollo

· Ares

· Bridgewater

Except they will manage not traditional bonds and stocks, but rather:

· ETH Treasury

· Stablecoin liquidity pools

· On-chain liquidity

· Restaking assets

· RWA yield assets

· DeFi interest rate strategies

This signifies:

DeFi's industry structure is undergoing a transformation.

In the past, DeFi's core players were:

· Protocol developers

· DAOs

· VCs

· Retail LPs

In the future, we may gradually see the emergence of:

· On-chain asset management companies

· Onchain Prime Brokers

· On-chain risk management platforms

· Institutional Liquidity Providers

· Corporate Treasury management platforms

What Galaxy is actually doing with this move is capturing:

"The institutional on-chain asset management gateway."

Why Are Institutions Embracing DeFi Again Now?

This is the most critical part of the entire event for in-depth analysis.

Because after the massive crash from 2022 to 2024, many believed:

Institutions might never truly enter DeFi in the future.

But the market environment has now undergone significant changes.

1. DeFi Has Entered the "Cash Flow Era"

The DeFi Summer of 2020 was, in essence, the:

"Liquidity Mining Era."

Most yields came from:

· Token incentives

· Inflationary emissions

· High leverage

But today, the industry is entering the:

"Real Yield Era."

Many on-chain yields are now beginning to possess characteristics of:

· Treasury bond yield logic

· Stable cash flow

· Real fee-based revenue

· Sustainable interest rate markets

For example:

· Stablecoin lending rates

· On-chain treasury yields

· ETH Restaking yields

· RWA yield pools

· DEX fee sharing

This means:

DeFi is no longer just a "speculative tool" but is beginning to acquire the attributes of financial infrastructure.

2. The Stablecoin Sector Has Begun Its Institutionalization

Stablecoins are, in fact, the true foundational layer for all institutional DeFi.

Because the primary need for institutions entering the on-chain world is not speculation, but rather:

Dollar liquidity.

The stablecoin market has evolved from its past role as a "crypto trading medium" into:

· An on-chain dollar system

· A global payment network

· An internet monetary layer

· An on-chain short-term treasury market

Products like USDC, USDT, USDY, and BUIDL are essentially driving:

"The financialization of on-chain dollars."

And once the stablecoin market matures, institutions will naturally begin to focus on:

· Stable yields

· On-chain interest rates

· Capital management

· Treasury yield optimization

The fund by Galaxy and SharpLink is precisely positioned at the intersection of:

Stablecoin Financialization + ETH Yield Generation.

3. Restaking Is Restructuring the ETH Interest Rate System

The development of the Restaking sector, including projects like EigenLayer, is another key reason institutions are re-evaluating ETH.

In the past, ETH yields were limited to:

· Staking APR

But now, new sources are emerging:

· Restaking yields

· AVS (Actively Validated Services) yields

· Re-staking yield layers

· On-chain security service markets

This means:

ETH is gradually forming a system resembling an "internet benchmark rate."

And once ETH becomes the core collateral within the on-chain financial system, then:

Yield management, risk management, and capital efficiency optimization centered around ETH will create a massive industry.

What SharpLink and Galaxy are doing now is essentially:

Securing an early position at the institutional gateway to the "ETH Interest Rate Market."

Why Is This Potentially an Upgrade to the ETH Narrative?

Over the past few years, BTC has established a very mature institutional narrative:

Digital Gold.

But ETH's narrative has remained somewhat unclear.

Some view it as:

· A tech stock

· Web3 Oil

· Gas Token

· A smart contract platform

However, none of these narratives are sufficient for traditional capital to establish a long-term valuation framework.

Now, a new perception is emerging in the market:

ETH is the "productive capital" within the on-chain financial system.

This is a very crucial shift.

Because once institutions start viewing ETH as:

· A Yield-Bearing Asset

· Productive Reserve

· Onchain Collateral

· Internet Capital Asset

Then its valuation logic undergoes a significant transformation.

ETH's future value may no longer be based solely on:

"Price appreciation expectation."

Instead, it could be derived from:

· On-chain cash flow

· Network interest rates

· DeFi capital efficiency

· Scale of on-chain financial activity

This shows increasing similarities with elements in traditional finance like:

· Treasury bonds

· Interbank rate markets

· Money market funds

The partnership between SharpLink and Galaxy is, in essence, pushing for:

An upgrade of ETH from a "crypto asset" to a "foundational on-chain financial asset."

Risks Persist: Institutional DeFi Does Not Equal Absolute Safety

Of course, the market will not automatically become safer simply because institutions are entering.

In fact:

The biggest issue with institutionalized DeFi might precisely be the "potential amplification of systemic risks."

In the past, DeFi risks were more often:

· Single-protocol risks

· Single-project risks

But if large volumes of institutional capital enter the on-chain world in the future, then:

Risks could evolve into:

· Liquidity-related systemic risks

· On-chain leverage risks

· Large-scale liquidation risks

· Cross-protocol risk contagion

This path is quite similar to the development trajectory of traditional finance.

The 2008 financial crisis was, in essence, also about:

Over-financialization and nested risks.

And DeFi is gradually moving towards:

More complex capital structures.

For example, the future might see the emergence of:

· On-chain structured products

· Onchain CDS (Credit Default Swaps)

· On-chain interest rate swaps

· DeFi Credit Markets

· Tokenized Hedge Funds

These innovations would greatly enhance capital efficiency, but simultaneously increase system complexity.

Therefore, the true future importance of institutions like Galaxy might not just be "generating yield," but rather:

Becoming the risk management layer for the on-chain world.

What Does This Event Truly Signify?

From a more macro perspective, the partnership between Galaxy and SharpLink actually represents:

The global financial market's first serious attempt to construct an "on-chain capital market."

Over the past few decades, the core of the traditional financial system has always revolved around:

· The banking system

· The treasury bond system

· Federal Reserve interest rates

· The SWIFT settlement network

What blockchain truly aims to create is not merely a new asset class.

Its true ambition is to create:

An entire native internet-based financial system.

Now, the complete outline of this system is beginning to take shape:

· Stablecoins = On-chain dollars

· ETH = On-chain reserve asset

· DeFi = On-chain banking system

· Restaking = On-chain security market

· RWA = On-chain bond market

· L2 = On-chain settlement network

And the fund by Galaxy and SharpLink is, in essence:

One of the first experiments to genuinely attempt large-scale integration of traditional institutional capital into this system.

Therefore, the truly important aspect of this event has never been the "$125 million."

It is:

Institutional capital has begun to believe that:

Over the coming decades, on-chain financial markets may become an integral part of the global financial system.

And this, perhaps, marks the true beginning of the crypto industry's maturation phase.