Author: Yogita Khatri
Compiled by: Deep Tide TechFlow
Deep Tide Guide: For a long time, the involvement of traditional finance (TradFi) giants in cryptocurrency has mostly been limited to equity investments or pilot projects. However, recent moves by giants like BlackRock and Citadel to directly purchase governance tokens such as UNI and ZRO send a strong signal.
This article delves into the deep logic behind this shift: it is not simply an asset allocation, but rather to secure future usage rights for on-chain financial infrastructure.
As the regulatory environment becomes clearer and token tools improve, DeFi tokens are evolving from "soft governance" to functions similar to "on-chain equity." A structural transformation driven by institutions is underway.
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Traditional finance (TradFi) institutions are no longer just partnering with the crypto industry; they are directly buying governance tokens.
Within just a few days earlier this month, BlackRock, Citadel Securities, and Apollo Global Management successively disclosed purchases of DeFi tokens or related acquisition plans. BlackRock brought its tokenized treasury fund BUIDL on-chain via UniswapX and purchased UNI tokens; Citadel Securities supported the launch of LayerZero's "Zero" blockchain and received ZRO tokens; Apollo or its affiliates reached a cooperation agreement with Morpho, planning to acquire up to 90 million MORPHO tokens over 48 months, approximately 9% of the total supply.
For years, large financial companies' exposure to cryptocurrency was mostly limited to equity investments, venture capital rounds, or pilot projects. Direct holdings of tokens were very rare.
So, what has changed? Most investors I spoke to said this is less about making a large-scale bet on DeFi tokens and more about ensuring access to infrastructure.
"Each company is buying 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, the 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, not asset allocation.
TradFi companies are tokenizing their products for on-chain distribution. These products require DeFi venues, and buying the tokens of the protocols they rely on is "largely symbolic but does build some alignment and brand halo," said Lex Sokolin, co-founder and managing partner of Generative Ventures. He added: "Unless the purchase size is extremely large, this is unlikely to change market dynamics, but that's not TradFi's goal. They are selling products to us, not buying from us." He pointed out that TradFi companies are the "factories," while cryptocurrency is the "store" selling tokenized products.
Investors generally believe that DeFi itself has not undergone a fundamental shift in basics overnight. Instead, the infrastructure has matured, and regulatory clarity has improved over the past few years.
"Custody and operational infrastructure have significantly improved in the last 12 to 24 months," said Lasse Clausen, founding partner of 1kx. "The tools, controls, and governance around holding and using tokens are better than before, making it more feasible for large, compliant institutions to hold tokens directly."
Regarding regulatory clarity, Amir Hajian, a researcher at crypto investment firm Keyrock, mentioned several announcements. The repeal of Staff Accounting Bulletin No. 121 (SAB 121), effective early 2025, removes accounting treatment requirements that previously imposed high costs on many public companies for crypto custody. The Securities and Exchange Commission (SEC) closed investigations into companies including Uniswap, Coinbase, and Aave without enforcement action. The GENIUS Act creates a federal framework for stablecoins. Furthermore, the SEC's "Project Crypto" introduced a four-tier token taxonomy, which Hajian said "signals that most governance tokens are not securities." Meanwhile, several investors said the potential passage of the CLARITY Act is another regulatory positive, and TradFi companies are positioning themselves ahead of it.
Structural Shift or Symbolic Move?
Most investors said these TradFi moves represent a real structural shift in how institutions participate in cryptocurrency, not just purely symbolic bets. Others believe the reality lies somewhere in between, while a few still see it as primarily strategic positioning.
"I believe it's 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 size don't allocate capital casually. Having worked in traditional finance for 20 years, I know the internal governance, risk, and compliance hurdles required to approve such investments. These are prudent strategic decisions, not symbolic gestures."
Still, size matters. Some investors said that, based on what has been disclosed, these allocations are still small relative to institutional balance sheets. Anirudh Pai, partner at Robot Ventures, said that before governance tokens represent a meaningful proportion of assets under management (AUM) or become a core part of the strategy, "it's premature to call it a structural shift, and the market may have extrapolated stronger confidence than actually exists."
Governance Tokens vs. Equity
Are we entering a "New Meta" where governance tokens begin to function more like strategic equity?
Most investors said not yet, but the industry seems to be moving in that direction.
Investors pointed out that tokens still have no legal recourse to protocol assets, bear no fiduciary duty to holders, and are still subject to regulatory ambiguity. They said that for governance tokens to truly function like strategic equity, a meaningful shift towards shareholder-like rights and clearer value capture mechanisms is needed.
"If governance can actually control cash flows or meaningful economic levers, they could function 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 economics, then the analogy starts to make sense. But in most cases today, the rights remain 'soft.' Legal enforceability is limited, and governance is often more social than contractual. If institutions expect strict execution, that might require clearer regulatory treatment. Situations like the Aave governance debate show how messy this can get."
Rob Hadick, partner at Dragonfly, said that after crypto market structure legislation passes, he expects to see new token designs that look more like "on-chain equity."
Why Hasn't There Been a Substantial Price Movement? What Needs to Change?
These TradFi moves are significant, but the price reaction has been tepid. Most investors said the muted response reflects a simple reality: the market was weak when the announcements were made, risk appetite was low, and Bitcoin was under pressure.
More importantly, tokenomics didn't change overnight. "Currently, seasoned holders often don't react until economic benefits are actually reflected in the protocol," said Samantha Bohbot, partner and chief growth officer at RockawayX. Pai agreed, arguing that if there is no lasting link between protocol cash flow and token holders, the reaction will be muted—which it has been.
More broadly, even as protocols show robust revenue and total value locked (TVL), DeFi token performance has lagged. Why does this disconnect persist? "It's a paradox," noted CoinFund's Brukhman, pointing out that most DeFi tokens historically have had little revenue capture ability. "Value flows to liquidity providers (LPs) and development teams, not token holders, and continuous venture capital (VC) unlock schedules create persistent selling pressure," he said. "Institutional money entering in 2025 demands proof of cash flow before allocation; they are buying selectively (BTC, ETH), not broadly rotating into DeFi. L1/L2 fragmentation further dilutes value capture for any single protocol."
Several investors said clear value capture is key.
"We need to see protocols turn on clear 'fee switches' and value capture for their tokens, while issuers 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 sustained capital, and institutional inflows further accelerate the process by providing liquidity and validation."
Brukhman added that besides fee switches, VC unlock schedules must slow down, revenue must scale to support fully diluted valuation (FDV), and regulatory clarity around token status must improve so institutional allocators can hold without compliance risk. "The biggest potential catalyst is the approval of DeFi ETFs: Grayscale AAVE -2.66% and Bitwise," he noted.
Dragonfly's Hadick said regulatory constraints have so far prevented a direct, clear relationship between protocol revenue and token price. With the passage of market structure legislation, he expects this link to become more explicit.
Meanwhile, Pratik Kala, head of research and portfolio manager at Apollo Crypto (unrelated to Apollo Global Management), said 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 80x. "The market will find equilibrium at some point," he said.
Governance Capture Risks and Potential Pitfalls
The growth in institutional participation naturally raises the question: does this lead to centralization of power?
Several investors said this risk is real, while others argued that professional governance participation can add discipline and long-term orientation.
Keyrock's Hajian said the bigger governance issue today is not concentration but "apathy." He said DAO voting participation is typically in the single digits. He added that institutional participants, who often have much higher voting rates in traditional markets, could raise the level of oversight and improve proposal quality.
As for what could go wrong with these TradFi moves, regulation remains the biggest risk. Several investors warned that the current regulatory environment is government-dependent. A reversal in policy, or a more aggressive classification of revenue-sharing tokens as securities, could force institutions to retreat or force protocols to become more "permissioned."
"A future SEC chair could reclassify governance tokens with fee switches as securities," Hajian said. "The CLARITY Act on market structure hasn't passed yet (though it's very likely)."
"We must get the CLARITY Act passed!" Brukhman said.
Will More TradFi Companies Follow Suit?
Most investors expect more TradFi companies to buy DeFi tokens, but they will be very selective, focusing on blue-chip protocols.
The prevailing view is that future purchases will also be tied to product strategy, not speculation. Companies already building tokenized products or on-chain infrastructure are seen as the most likely next movers.
Pai said Fidelity Investments, Franklin Templeton, Goldman Sachs, and JPMorgan might allocate positions consistent with their settlement or liquidity strategies. Hajian pointed to Goldman Sachs, BNY Mellon, Franklin Templeton, and Cantor Fitzgerald as potential next participants. Klocanas mentioned JPMorgan, Morgan Stanley, Fidelity, Franklin Templeton, Janus Henderson, and Visa as also being candidates. Brukhman speculated that Fidelity, Franklin Templeton, and State Street are possible movers, while JPMorgan is more likely to build itself rather than buy tokens.
On the protocol side, investors said activity will concentrate on large, liquid protocols related to stablecoins, tokenized real-world assets (RWA), and trading infrastructure. Given Aave's size in lending, institutional integrations, and evolving value capture mechanisms, both Hajian and Brukhman mentioned it. Other names brought up include Maple Finance for institutional credit, Sky and Ethena in the stablecoin space (according to Klocanas), while Brukhman pointed to Sky and EtherFi.
While these moves are mostly tied to strategic partnerships or working relationships for now, Hadick said he ultimately expects TradFi companies to "invest in DeFi protocols without a clear strategic relationship."
