For decades, banks built systems around trust intermediaries, paper trails, and delayed settlements. Then DeFi showed a different model with trust encoded in software and verified in real time. At first, it looked too risky, too unregulated, too raw.

But over the last two years, the tone has changed. Regulators, custodians, and compliance providers have built the rails. Risk is being quantified. Infrastructure is battle-tested. That’s why institutions, from investment banks to sovereign funds, are now dipping capital into DeFi.

From fog to roadmap

Regulation once felt like driving through fog. No one knew which way the road curved. In 2024, that fog began to lift.

The EU’s MiCA framework gave clarity on tokenized assets and stablecoins. Hong Kong opened the gates for licensed firms to custody and trade crypto. In the U.S., regulators began defining ETH-linked products and settlement structures.

Larry Fink, CEO of BlackRock, summed it up well in 2024 “We believe the next generation for markets is tokenization.” That belief doesn’t come without rules. For institutions, regulatory clarity is the permission slip to scale.

From weak locks to fortresses

Early custody was fragile. Private keys on USB sticks, exchanges running like unregulated warehouses. Not good enough for pension funds.

Now, custody looks like a fortress. Multi-party computation, segregated accounts and insurance. Providers like Anchorage Digital and Fireblocks offer institutional-grade solutions. Coinbase Custody, with billions under management, has onboarded traditional asset managers.

When banks ask “Who holds the keys?”, they now get an answer they can trust.

From casino to factory

The biggest perception hurdle is risk. In 2021, DeFi looked like a casino floor with bright lights, quick wins and hidden losses.

Today, it resembles a factory floor. Transparent, automated and auditable. Smart contracts undergo multiple security audits. Reserves are visible onchain. Insurance primitives like Nexus Mutual add safety nets.

As Stani Kulechov of Aave said, “Institutions want to see the same risk frameworks they are used to, but onchain.” That’s exactly what’s being built.

Kelp’s model speaks to this. By providing liquid restaking through rsETH, it allows capital allocators to stay flexible while still earning restaking rewards. Institutions don’t need to lock assets or manage validator risk directly -- they can gain scalable exposure to EigenLayer while maintaining liquidity and onchain transparency.

The invisible infrastructure

Compliance is rarely sexy. It’s like plumbing, making it unseen but indispensable. For institutions, compliance tools now exist at every layer:

• Chainalysis and TRM Labs monitor suspicious flows.

• Onchain KYC modules create permissioned pools.

• Transaction records integrate directly with bank reporting systems.

This allows institutions to meet capital adequacy and AML standards while still operating in DeFi. The infrastructure is no longer a patchwork. It’s a pipeline.

Adoption: From pilots to production

Here’s where the story gets interesting.

• JPMorgan on Polygon (2022): It began as a pilot, settling tokenized collateral between banks in Singapore. The results showed instant settlement was not just possible, but cheaper. That’s like discovering email after years of sending faxes.

• Societe Generale’s Bond Issue (2023): The French bank issued €40M in digital bonds directly on Ethereum. It wasn’t just a tech experiment. It was a proof that regulated securities could live on a public chain. For Europe’s oldest institutions, this was a message: Ethereum is no longer fringe.

• BlackRock’s BUIDL Fund (2024): This was the watershed. BlackRock didn’t test, it deployed. Its tokenized money-market fund attracted $500M within weeks. As Fink put it, tokenization is the future of markets. With the world’s largest asset manager on-chain, institutions had their signal.

Each case starts small, but ends with scale. The pattern is clear that institutions test in controlled pilots, then grow fast when the efficiencies are undeniable.

Why they’re coming onchain?

For banks, DeFi isn’t about chasing hype. It’s about efficiency. Settlement cycles shrink from T+2 days to minutes. Liquidity is composable. Risk is observable.

Think of the transition as moving from postal mail to email. Same function of sending messages, but radically faster, cheaper, and global.

Kelp is part of this evolution. With $2.2B+ TVL and integrations across 50+ protocols, it provides restaking infrastructure that is liquid, disciplined, and scalable. Its token, rsETH, lets institutions earn restaking rewards while staying liquid, which is a critical demand for capital allocators.

Institutional DeFi isn’t a thought experiment anymore. It’s happening in real time. Regulatory clarity, custody evolution, risk frameworks, and compliance plumbing have created the conditions. Adoption stories show the path.

And at the core of this shift, protocols like Kelp are building the rails quietly and reliably, at scale.

The question is no longer if institutions will move onchain. It’s how fast they will.

Disclaimer: This is not financial advice. Always DYOR and understand the risks involved before depositing into any DeFi protocol.