In 2025, the walls separating traditional finance and decentralized finance are thinner than ever. Asset managers now hold tokenized treasuries, crypto protocols issue structured products, and regulators are drafting rules for technologies that rewrite the very idea of trust. What began as a rebellion against the banking system has become a quiet merger — a “grey zone” where Wall Street’s structure meets Web3’s code.
This convergence isn’t just a technical upgrade. It’s a philosophical shift redefining how value moves, how markets are built, and who gets to participate.
The Great Pivot: From Centralized Power to Transparent Code
For many former bankers, the leap from Wall Street to Web3 wasn’t about leaving finance behind; it was about fixing what was broken.
“My motivation came from the opportunity to build something new for the world; a system that actually makes sense,” said Mehdi Lebbar, co-founder and CIO of YO Labs, a DeFi yield-infrastructure company. “Traditional finance is built around counterparty risk, and that creates information asymmetry and incentives for bankers to act in self-interest. DeFi allows us to build verifiable, transparent systems where value creation can be shared and validated on-chain.”
Lebbar, who began his career in investment banking at Credit Suisse before joining the World Bank, describes his shift to blockchain as a move toward “3D building” — expanding the pie instead of fighting over existing slices.
Josip Rupena, founder and CEO of Milo, took a similar path after years at Goldman Sachs and Morgan Stanley. He saw firsthand how legacy finance excluded millions of people who didn’t fit the traditional profile.
“That experience showed me how wealth is built in traditional finance, but also who gets excluded,” he said. “When I founded Milo, my aim was to expand access to homeownership. DeFi was a natural progression because many crypto investors had substantial wealth but no way to use it without selling. For me, it was never about hype; it was about solving a real problem.”
Milo’s solution; a 30-year crypto-backed mortgage lets clients borrow against Bitcoin or Ethereum without liquidating their holdings, a simple but powerful idea that bridges digital and traditional balance sheets.
Slow to Adopt, Fast to Evolve
Despite the promise of blockchain, most legacy institutions remain cautious.
“Smart contracts enable automation, transparency, and efficiency,” Lebbar said. “Traditional institutions could easily leverage that automation for things like microloans or short-term credit lines, but they don’t; mostly because of regulatory uncertainty and margin protection.”
He argues that this hesitation goes beyond compliance. “In the DeFi world, you don’t need to know who interacts with who,” he said. “That’s not how banks operate — their model depends on employees making judgment calls. It’s a mindset shift they’re still resisting.”
Thomas Mattimore, CEO of ABC Labs and a core contributor at Reserve, echoes that sentiment but sees the shift already underway.
“Traditional finance has been slow to embrace real-time transparency,” he told me. “In DeFi, you can see where assets are held and how they’re backed down to the second. ETFs, on the other hand, might disclose holdings monthly. That immediacy and verifiability are major breakthroughs, but incumbents were never designed for that level of scrutiny.”
Still, he believes blockchain’s role is more evolution than replacement. “Blockchain is a social, financial, and legal technology all at once,” Mattimore said. “Traditional institutions will continue to use blockchain behind the scenes for custody, settlement, and reporting, even if they don’t call it DeFi.”
Tokenization: The Quiet Bridge Between Two Worlds
Ask any of the experts where the real progress lies, and they all point to one word — tokenization.
“Stablecoins like Tether pioneered the concept by backing tokens with real-world assets — they’re now among the largest holders of U.S. Treasuries,” Lebbar explained. “But it’s expanding fast. Projects like Mountain Protocol are tokenizing treasury bonds with yield, and we’re seeing experiments with tokenized gold, silver, even equities. BlackRock’s work in this space is massive.”
Mattimore’s company is part of that evolution. Reserve’s Decentralized Token Folios (DTFs) act like on-chain ETFs, giving investors one-click exposure to crypto markets while maintaining transparency.
“What’s exciting is that DeFi infrastructure can now host institutional-grade portfolios,” he said. “You get the same rigor as traditional markets, but the composability and transparency of blockchain remain intact.”
Rupena, from the mortgage side, sees tokenization as the next chapter in capital markets.
“In the next few years, we’ll see tokenized mortgage-backed products,” he predicted. “That shift won’t just improve efficiency; it will broaden access. Today, mortgage securities are concentrated in the hands of a few large institutions. A hybrid model could put high-quality, yield-bearing assets into a wider range of portfolios.”
Regulation’s Catch-Up Game
The problem is that innovation moves faster than regulation; and that gap defines much of the current “grey zone.”
“Traditional regulations are built around intermediaries,” Lebbar said. “They assume there’s always a central actor; a JPMorgan, responsible for custody and compliance. But when you replace that actor with code, the model breaks down. There’s no CEO of Aave to sue, no branch manager to call.”
Mattimore calls it a clash of tempos. “DeFi moves continuously; regulation still moves quarterly,” he said. “Bridging that gap means rethinking what compliance even looks like in a programmable environment.”
Rupena, whose firm operates under U.S. lending licenses, believes compliance is not the enemy; it’s the foundation for credibility.
“Regulation has always lagged innovation,” he said. “But we leaned into it from the start; securing state licenses, undergoing audits, reporting quarterly. If you’re holding a client’s Bitcoin for decades, you need that trust. The current grey zone around tokenized assets is temporary; clearer rules will come.”
Control, Decentralization, and the New Middle Ground
As banks, funds, and regulators enter the blockchain space, critics worry the technology’s decentralized ethos could be diluted.
Lebbar is blunt:
“Blockchain without decentralization is just a glorified distributed database; and banks already have that. If we lose decentralization, we lose the reason blockchain exists.”
Mattimore agrees, but sees nuance. “Every technology starts open and adapts as larger players enter,” he said. “Institutions aren’t hijacking blockchain; they’re operationalizing it. The key is keeping transparency and composability intact, even when compliance layers are added.”
That balance may come from hybrid design. “Decentralization in the back end, regulation in the front end,” Lebbar suggested. “Keep the infrastructure open, but let the interface handle KYC and AML.”
Rupena views it as evolution rather than compromise.
“Institutions bring capital and stability; DeFi brings innovation and transparency. The real opportunity is convergence. This isn’t a loss of principles; it’s how the ecosystem matures.”
The Road Ahead: Merging, Not Replacing
So, will the two worlds ever fully merge? The consensus is cautious optimism.
“Most of what banks do today will be replicated by blockchain protocols,” Lebbar predicted. “We already have algorithmic lending through Aave and curated systems like Morpho. Over time, those will converge; a blend of decentralized efficiency and selective human oversight.”
Mattimore sees the same trend but warns against premature declarations of victory. “They’ll coexist for a long time,” he said. “Full merger isn’t realistic yet, but many traditional systems will gradually start to look more like DeFi; more transparent and permissionless.”
For Rupena, the path is practical: “Consumers don’t care about ideology; they care about outcomes. They want to keep their crypto, finance their home, and do it safely. That’s where hybrid finance wins.”
A New Definition of Trust
The grey zone between TradFi and DeFi isn’t chaos; it’s creation. Each wave of innovation reshapes what trust looks like: from signatures to spreadsheets, and now, to smart contracts.
For a generation of financial builders, blockchain isn’t about replacing Wall Street; it’s about rewriting its assumptions. Transparency, programmability, and global access are no longer edge features; they’re expectations.
As Lebbar put it, “If we move toward a tokenized world where only institutions can see what’s happening under the hood, we’ll have rebuilt the old system on new rails. The real power of DeFi is that anyone, anywhere, can verify and participate. That’s what makes it transformative; not just efficient.”
