Institutional DeFi: Mass Adoption Behind the Curtain

Why Institutional DeFi will accelerate mass adoption of DeFi services


Hey DEFI TIMES community,

Who's making noise in crypto? Right, new market participants!

People, who we usually call "retailers," are the ones making the most noise.

They are screaming the loudest, buying all kinds of useless meme coins - before they leave the market as soon as the first problems show up.

As so often in life, the loudest people get the most attention.

But this is not the topic of today's newsletter. Today we talk about the exact opposite of noisy retailers: Institutions!

Institutions don't care about meme coins and your latest yield farming hype. They care about fundamentals and actual innovations. Sooner or later, they will begin to use DeFi in a big way. However, this entry will be silent, and most people won't even notice.

Institutional DeFi is DeFi mass adoption behind the curtain.

In 2020, DeFi went from 0 to 1.

Institutions are the key to get the DeFi industry from 1-10!

So, let's explore this exciting new wave of market participants! Today, we talk about why institutional DeFi will accelerate the mass adoption of DeFi services.


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Institutional DeFi: Mass Adoption Behind the Curtain

What Is Institutional DeFi?

Institutional DeFi is just time taking its natural course. In DeFi Summer 2020, mainly retail investors and speculators used DeFi services while institutions had no interest whatsoever in yield farming, etc.

Times change quickly!

While DeFi was speculative and unexplored back then, we now have much more experience and a better understanding of what the future looks like.

We know that DeFi is the future of financial services. In the end, we are just replicating financial services on the blockchain. More and more institutions realize this simple fact and are starting to pay attention to what's happening here.

On Aave, you can earn an actual yield on your cash while on your bank account… Well, we don't need to talk about that!

Institutional DeFi is simply the fact that institutions are using DeFi. Of course, in the eyes of smart contracts, it doesn't matter whether you are a human, an institution, or a robot; Ethereum doesn't care. But the big difference is the sum of investment. Institutions have much more capital which makes their average investment more significant and noticeable.

Money talks!

Why Institutional DeFi Is Mass Adoption Behind the Curtain

Institutional DeFi is taking off right now - there's no denying it! However, there is no noise, and attention is lagging. Institutions don't shill their favorite shitcoin on social media. They don't ape into the latest yield farming opportunity; it's silent mass adoption!

Today, I'd like to focus on two examples of institutional DeFi that really show where things are heading.

1. Aave Pro - Institutional Money Market

Aave, the popular money market, has announced that it will build a permissioned version of its protocol exclusively for institutional investors.

The new protocol will only support four assets (Bitcoin, ETH, Aave, and USDC), with its pools separated from Aave's public ones.

Institutional investors need to go through a KYC process in order to deposit assets into the pool.

Aave wouldn't build this kind of infrastructure if there were no demand from the institutional side. Obviously, Aave sees excellent potential in institutional DeFi and sees this niche growing over time.

Aave is genuinely at the forefront of institutional DeFi! Money markets are a great alternative to traditional banks, where users literally get 0% interest rates. Aave uses this to its advantage to provide the perfect infrastructure for institutions to bypass these inconveniences!

2. Grayscale DeFi Fund

Grayscale has announced that it will launch an institutional-grade DeFi fund. Michael Sonnenshein, CEO at Grayscale Investments, said the firm had seen great interest from many existing Grayscale investors for DeFi services. That's why Grayscale has built its institutional-grade DeFi fund. The fund will enable institutional investors to have exposure to DeFi protocols and various DeFi assets. The fund will launch with the following assets:

  • Uniswap: 50%

  • Aave: 10%

  • Compound: 8%

  • Curve: 7.5%

  • MakerDAO: 6.5%

  • SushiSwap: 5%

  • Synthetix: 4%

  • Yearn: 3%

  • UMA: 3%

  • Bancor: 2%

The Grayscale news shows that institutions are not only keen on using DeFi protocols, they are also going to invest in DeFi tokens. In the end, DeFi Blue Chips reflect the growth of the underlying protocol. In most cases, their prices are very much correlated with the TVL and usage.

Institutions are hungry, but adoption takes place behind the scenes!

It's silent, steady, and consistent. Institutions are more careful than your average retail investor.

Institutional DeFi is mass adoption behind the curtain!

But what will the future look like? What can we expect in the medium-term future?

The Future of Institutional DeFi

DeFi protocols don't care if you are a human or a robot. And they for sure don't care whether you are a person or institution. Smart contracts are neutral!

We are building the backend of the new financial system. It's just the neutral settlement layer or infrastructure. In the end, it doesn't matter who uses Ethereum because anyone can!

Everybody is treated identically, and that's a good thing!

What we will see is that institutions will use DeFi protocols like traditional financial products. They will start using Aave as their bank; they will use Uniswap and provide liquidity to earn a yield on their idle stablecoins.

We are not only talking about institutional investors here. In the end, even traditional commercial banks will start using DeFi. Think about that for a second. What happens when banks realize that Aave actually generates positive returns? They can lend their customers money on Aave or Compound and take a cut from the profit (as they have always done).

Does the FED set the interest rate to zero? Who cares?

The moment you finally understand that the decentralized financial system is completely independent of the outside world is also the moment you realize what's coming.

What we are building is not only 2x better… It's 10x better!

And it's only a matter of time until institutions realize this:

  • Hedge funds

  • Commercial banks

  • Pension funds

  • Mutual funds

  • Insurance companies

They will all use DeFi sooner rather than later.

DeFi is the backend of the future financial system - And we will see institutions trickle in.

Of course, this is a slow process, and we won't see this happening overnight. It will take time, probably many years. But the procedure is always the same: First, we have brave early adopters, then the first and late majority. And in the end, the laggards will join if they are not dead yet!

This development is probably one of the most exciting parts of DeFi… even if it happens slowly and silently in the background!


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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.

Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.