[Recap] Breaking Barriers to Institutional Growth in DeFi

On March 26th, 2025, The Tie hosted a webinar on institutional DeFi adoption, moderated by Sacha Ghebali. The panel featured Thomas Chen (Function/FBTC), Hadley Stern (Marinade Finance), and Sid Powell (Maple Finance), who discussed the evolving landscape of institutional DeFi adoption, regulatory shifts, and technical innovations.

After seven years at BitGo, Chen founded Function to address a fundamental question: "If bitcoin is the most valuable asset in crypto, why is it one of the least productive on chain?" Function's flagship product, FBTC, now manages approximately $1.3 billion in TVL while providing a "fully liquid, highly composable and capital efficient" asset for institutional Bitcoin deployment.

Marinade Finance pioneered Solana's first liquid staking token (mSOL), currently managing about $2 billion in TVL. Unlike competitors, the platform distinguishes itself by distributing staked SOL across over 100 validators. "This basically ends up with reward yield that's about 50 to 100 basis points higher than someone running a single validator," Stern explained, highlighting the institutional appeal of their approach.

Maple Finance focuses on institutional lending with overcollateralized loans. "We take BTC, ETH, SOL, XRP from our clients as collateral," Powell noted, while their newer Syrup product extends institutional lending access to the broader DeFi market. Since launching, Maple has facilitated over $6 billion in loans with approximately $750 million in current TVL.

Despite growing momentum, institutional DeFi adoption remains in its early stages. "We're exceedingly early," acknowledged Stern, pointing to stablecoins as the strongest example of institutional usage thus far. Overall, the institutional landscape shows some promising trends. Institutional vault providers are continuing to raise capital while Layer 1 blockchains are integrating technology geared at institutional providers.

Other factors that have contributed to adoption include significant recent regulatory clarity, although custody solutions and network development are still challenges to overcome for most institutions. Despite some of these technical barriers to adoption, institutional perspectives have undergone a remarkable transformation, shifting "from skeptical to strategic," according to Chen.

This strategic shift has been largely enabled by a dramatic transformation in the regulatory environment. Early 2024 restrictions created significant barriers, with Powell explaining that "banks were not able to custody crypto assets" due to SAB 121, while active litigation against major crypto companies deterred traditional finance engagement.

This landscape has "totally reversed" with lawsuits dropped, SAB 121 scrapped, and new legislation in progress. The regulatory posture has "totally flipped," creating what Powell described as "a total game changer" for institutional conversations around DeFi offerings.

With regulatory clarity establishing a more favorable environment, attention has shifted to the technical infrastructure needed to support institutional participation. Security infrastructure remains foundational for institutional comfort. "Institutional grade security infrastructure is going to be the most important thing that gets institutions comfortable to start dipping their toe in the water," emphasized Chen. Creating secure on-ramps with trusted custodians while ensuring cross-chain compatibility maximizes utility.

Innovation across all layers of the stack contributes to accelerated adoption. Addressing liquidity fragmentation represents another critical challenge, with solutions like FBTC aiming to unify Bitcoin across multiple ecosystems under a common standard.

These infrastructure improvements have enabled a growing range of real-world applications across multiple platforms. Professional asset managers earn up to 11% APY on stablecoins through Maple Finance, while Bitcoin holders can access yield without leaving custodial arrangements.

Miners leverage Function to deposit FBTC and borrow against it at fixed rates (around 8%), avoiding Bitcoin sales while covering expenses. "They tend to not be natural sellers," Chen explained of miners' preferences, highlighting how DeFi solutions align with existing institutional behaviors.

Marinade's institutional clients utilize both native staking and more complex DeFi strategies, including techniques to "multiply your yield" through recursive borrowing against staked assets.

Looking toward the end of 2025, the panel expressed optimism for continued institutional adoption. Solana appears positioned to remain "the chain that institutions build real world assets on," according to Stern, while stablecoin issuance is expected to grow significantly.

Powell anticipates traditional finance institutions expanding tokenization beyond money market funds into equity and real estate. As Bitcoin ETFs mature, Chen predicted "the yield conversation will naturally follow," potentially driving "a surge in Bitcoin use cases in DeFi."

For hesitant institutions, the panel offered direct guidance: "Do it yesterday," advised Stern, while recommending they "start small, but start meaningfully." Allocating a modest R&D budget for active testing proves more effective than extended planning cycles.

Additionally, having an internal champion actively participating in DeFi helps articulate the value proposition throughout an organization. "If you don't have someone who's leading it, who's actually active in the space, it's going to be very hard to sell the value proposition internally," Chen cautioned.

DeFi protocols targeting institutions should prioritize compliance, security, and simplicity. While the regulatory environment has improved, Stern warned that "the compliance environment hasn't really changed." Successful protocols need "robust compliance and legal answers" paired with clear business value propositions rather than focusing solely on technical innovations.

The institutional DeFi landscape is experiencing significant momentum, propelled by newfound regulatory clarity and substantial infrastructure improvements. Though adoption remains in its early phases, traditional finance institutions are increasingly exploring yield opportunities beyond conventional markets, accelerating the pace of integration. The development of secure, compliant protocols that satisfy institutional requirements while maintaining DeFi's core benefits—transparency, speed, and global accessibility—stands as the critical bridge between these worlds.

The speakers envision a future where tokenized assets, institutional-grade staking, and productive Bitcoin strategies create new financial primitives, combining the best of both worlds. For institutions looking to enter the space, the message was clear: start small but meaningfully, partner with established players, and prioritize education throughout the organization.

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.