BlackRock and Citadel are aggressively "buying up." What qualitative changes have occurred in the logic of TradFi entering DeFi?

Author: Yogita Khatri

Translation: Deep潮 TechFlow

Deep潮 Guide: For a long time, traditional financial (TradFi) giants have limited their involvement in crypto 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 explores the deeper logic behind this shift: it’s not just about asset allocation, but about securing rights to future on-chain financial infrastructure.

As the regulatory environment clarifies and token tools improve, DeFi tokens are evolving from “soft governance” to functions similar to “on-chain equity.” A structural change driven by institutions is underway.

Full text below:

Traditional financial (TradFi) institutions are no longer just collaborating with the crypto industry—they are directly purchasing governance tokens.

In just a few days earlier this month, BlackRock, Citadel Securities, and Apollo Global Management disclosed plans to buy DeFi tokens or related acquisitions. BlackRock introduced its tokenized treasury bond fund BUIDL onto the chain via UniswapX and purchased UNI tokens; Citadel supported LayerZero’s “Zero” blockchain launch and received ZRO tokens; Apollo or its affiliates reached a partnership with Morph, planning to acquire up to 90 million MORPHO tokens over 48 months, about 9% of the total supply.

For years, large financial firms’ exposure to crypto was mostly limited to equity investments, venture rounds, or pilot projects. Direct token holdings were very rare.

So, what has changed? Most investors I spoke with say it’s less about a large-scale bet on DeFi tokens and more about securing access to infrastructure.

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

Investors emphasize that the focus is on distribution and product strategy, not asset allocation.

TradFi firms are tokenizing their products for on-chain distribution. These products require DeFi venues, and buying the protocols’ tokens “is largely symbolic but does establish some consistency and brand halo,” said Lex Sokolin, co-founder and managing partner of Generative Ventures. He added, “Unless the scale is huge, it’s unlikely to change market dynamics, but that’s not the goal of TradFi. They’re selling us products, not buying from us.” He pointed out that TradFi companies are “factories,” while cryptocurrencies are “shops” selling tokenized products.

Most investors agree that DeFi itself has not undergone a fundamental shift overnight. Instead, infrastructure has matured, and regulatory transparency has improved over the past few years.

“In the past 12 to 24 months, custody and operational infrastructure have significantly improved,” said Lasse Clausen, founding partner of 1kx. “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 transparency, Amir Hajian, researcher at crypto investment firm Keyrock, mentioned several announcements. The SAB 121 accounting rule, abolished in early 2025, removed costly accounting requirements that previously burdened many public companies with crypto custody. The SEC ended investigations into firms like Uniswap, Coinbase, and Aave without enforcement actions. The GENIUS Act created a federal framework for stablecoins. Additionally, SEC’s “Project Crypto” introduced a four-tier token classification, which Hajian said “signals that most governance tokens are not securities.” Meanwhile, some investors see the upcoming CLARITY Act as another regulatory boon, with TradFi firms already preparing for it.

Structural shift or symbolic gesture?

Most investors believe these TradFi moves represent a genuine structural change in how institutions participate in crypto, not just symbolic bets. Others see it as somewhere in between, with a few still viewing it as a strategic positioning.

“I believe this is structural,” said Richard Galvin, executive chairman and CIO of Digital Asset Capital Management, a former Goldman Sachs and J.P. Morgan executive. “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 needed to approve such investments. These are prudent strategic decisions, not symbolic gestures.”

That said, size still matters. Some investors note that, based on disclosed data, 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 strategy, “it’s premature to call this a structural shift; the market may be overestimating confidence beyond what actually exists.”

Governance tokens vs. equity

Are we entering a “new paradigm,” where governance tokens start to function more like strategic equity?

Most investors say not yet, but the industry appears to be heading in that direction.

They point out that tokens still lack legal recourse over protocol assets, do not impose fiduciary duties on holders, and remain affected by regulatory ambiguity. To truly function as strategic equity, governance tokens need a meaningful shift toward shareholder-like rights and clearer value capture mechanisms.

“If governance can genuinely control cash flows or have meaningful economic leverage, they can operate like strategic equity,” said Boris Revsin, partner and managing director at Tribe Capital. “If token holders can influence fee switches, treasury use, or protocol direction in a way that impacts the economy, then the analogy begins to make sense. But today, rights are mostly ‘soft.’ Legal enforceability is limited, and governance is often more social than contractual. If institutions expect strict enforcement, clearer regulation may be needed. Cases like the Aave governance debate show how chaotic this can get.”

Rob Hadick, partner at Dragonfly, said he expects to see new token designs that look more like “on-chain equity” once the market structure bill passes.

Why haven’t token prices fluctuated substantially? What needs to change?

While these TradFi moves are significant, market reactions have been muted. Most investors say this reflects a simple reality: markets were weak at the time of announcement, risk appetite was low, and Bitcoin was under pressure.

More importantly, tokenomics haven’t changed overnight. “Currently, unless the economic benefits are actually reflected in the protocol, seasoned holders tend not to react,” said Samantha Bohbot, partner and chief growth officer at RockawayX. Pai agreed, believing that if there’s no persistent link between protocol cash flows and token holders, reactions will be subdued—and that’s indeed the case.

Broadly, even protocols with solid revenue and total value locked (TVL) underperform in token markets. Why does this disconnect persist? “It’s a paradox,” said Brukhman. “Most DeFi tokens historically have had little revenue capture. Value flows to liquidity providers (LPs) and the development team, not token holders, and ongoing VC unlock schedules create persistent selling pressure.” He added, “Institutional capital entering in 2025 will require proof of cash flows before investing; they selectively buy BTC, ETH, not broadly rotating into DeFi. Fragmentation across Layer 1 and Layer 2 further dilutes the value capture of any single protocol.”

A few investors emphasized that clear value capture is key.

“We need protocols to open up clear ‘fee switches’ and value capture for their tokens, and issuers need better disclosures and lower inflation,” said Thomas Klocanas, managing partner at Strobe Ventures. “Regulatory positives like the CLARITY Act are also expected to attract sustained funding, and institutional inflows—via liquidity provision and validation—will accelerate this process.”

Brukhman added that, beyond fee switches, VC unlock schedules must slow, revenues must scale to support fully diluted valuations (FDV), and regulatory transparency around token status must improve so institutions can hold without compliance risks. “The biggest catalyst could be approval of a DeFi ETF: Grayscale’s AAVE -2.66% and Bitwise,” he pointed out.

Hadick from Dragonfly said that regulatory restrictions so far have hindered establishing a clear, direct link between protocol revenue and token prices. With the passage of the market structure bill, he expects this connection to become clearer.

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

Governance capture risks and potential pitfalls

The growth of institutional participation raises a natural question: will this lead to centralization of power?

Several investors say this risk is real, while others believe professional governance participation can increase discipline and long-term focus.

Hajian from Keyrock said that today’s bigger governance issue isn’t centralization but “apathy.” He noted DAO voting participation is often only single digits. He added that institutional voters in traditional markets tend to have much higher turnout and can improve oversight and proposal quality.

As for potential issues with these TradFi moves, regulation remains the biggest risk. Several investors warned that current regulatory environments depend on government policy. If policies reverse or if revenue-sharing tokens are more aggressively classified as securities, institutions might withdraw, or protocols could become more “permissioned.”

“Future SEC chairs might reclassify fee-switch governance tokens as securities,” Hajian said. “The ‘Clarity’ bill on market structure hasn’t passed yet (though it’s likely).”

“We must get the Clarity bill enacted!” Brukhman emphasized.

Will more TradFi firms follow suit?

Most investors expect more TradFi firms to buy DeFi tokens, but very selectively, focusing on blue-chip protocols.

The general view is that future purchases will be driven by product strategy rather than speculation. Companies already building tokenized products or on-chain infrastructure are seen as the most likely next movers.

Pai mentioned Fidelity, Franklin Templeton, Goldman Sachs, and J.P. Morgan as potential buyers aligned with their settlement or liquidity strategies. Hajian pointed to Goldman Sachs, BNY Mellon, Franklin Templeton, and Cantor Fitzgerald as potential next participants. Klocanas mentioned J.P. Morgan, Morgan Stanley, Fidelity, Franklin Templeton, Janus Henderson, and Visa as candidates. Brukhman guessed Fidelity, Franklin Templeton, and State Street as likely, with J.P. Morgan more likely to build internally rather than buy tokens.

On protocol activity, investors expect focus on large, liquid protocols related to stablecoins, tokenized real-world assets (RWA), and trading infrastructure. Given Aave’s scale in lending, institutional integration, and evolving value capture, Hajian and Brukhman both mentioned it. Others include Maple Finance (institutional credit), Sky and Ethena (stablecoins, per Klocanas), and Brukhman also pointed to Sky and EtherFi.

While most of these moves are currently tied to strategic partnerships or collaborations, Hadick said he ultimately expects TradFi firms to “invest in DeFi protocols without explicit strategic relationships.”