The growth of decentralized finance (DeFi) and asset tokenization continues to fall short of expectations, according to a new report from JPMorgan. Despite notable developments in infrastructure since the 2022 market downturn, adoption—particularly by institutions—remains limited.

“DeFi activity remains well below its 2021 peak,” wrote Nikolaos Panigirtzoglou, lead analyst at JPMorgan. “The recovery has stalled, with participation still largely driven by crypto-native and retail users.”

The report highlights that while Total Value Locked (TVL) across DeFi protocols has stabilized, it remains far from previous highs. Institutional involvement has been modest, even with the rollout of permissioned lending pools and Know-Your-Customer (KYC)-enabled vaults designed to meet regulatory standards.

Regulatory and Structural Barriers Persist

Several factors continue to hold back institutional engagement, the report notes. Chief among them are fragmented regulations, legal uncertainty surrounding on-chain assets, and ongoing concerns about the security of smart contracts.

“As a result, most institutional exposure to crypto remains concentrated in bitcoin,” the report said.

Tokenization Progress Fails to Scale

The asset tokenization sector is also facing headwinds. While there has been some measurable progress—including over $25 billion in tokenized assets and $8 billion in tokenized bonds—most initiatives remain limited in scale, illiquid, or experimental.

High-profile projects like BlackRock’s BUIDL and Broadridge’s Distributed Ledger Repo (DLR) platform have shown potential efficiency gains but lack widespread adoption.

“In private markets, tokenization remains concentrated among a handful of players, with virtually no meaningful secondary market activity,” Panigirtzoglou noted.

Skepticism Among Traditional Investors

One key issue, according to JPMorgan, is the reluctance of traditional finance (TradFi) institutions to embrace blockchain’s transparency. Many institutional investors prefer the anonymity and opacity offered by dark pools and off-exchange trading venues.

This skepticism persists despite regulatory efforts such as the U.S. Securities and Exchange Commission’s “Project Crypto,” which aims to modernize financial market rules in favor of tokenized platforms.

“Ultimately, the core challenge is not regulatory—it’s that traditional finance still doesn’t see a clear value proposition in adopting blockchain-based systems,” the report concludes. Fintech innovations have already delivered significant gains in speed and efficiency within existing frameworks, reducing the perceived need for blockchain alternatives.