Author: Gu Yu, ChainCatcher

Unlike the previous bear market cycles, the crypto industry has recently fallen into a strange state of fragmentation over the past 1-2 years, with completely different emotional states between traditional finance (TradFi) institutions outside the industry and DeFi, public chains, investors, and other groups within the industry, raising many questions among industry observers.

On February 23, DoubleZero co-founder Austin Federa posted on X, stating, that no other time have institutions and corporations been so enthusiastic about cryptocurrencies as they are now. Meanwhile, crypto natives seem to be stuck in an endless cycle of depression.

Indeed, traditional financial institutions' adoption of crypto has reached unprecedented heights, with asset management giants like BlackRock launching cryptocurrency ETF funds, payment giants like Visa and Mastercard fully embracing stablecoin settlements, and commodities like gold, silver, and stocks being tokenized and listed on crypto exchanges such as Coinbase and Binance. More importantly, the regulatory environment continues to improve—the advancement of the U.S. Market Structure Act and the full implementation of the European MiCA provide institutions with a clear "ticket to entry."

Even the Chinese government has recently introduced groundbreaking policies regarding Real World Assets (RWA). On February 6, 2026, the People's Bank of China, in conjunction with eight departments including the National Development and Reform Commission, issued a notification that provided a clear definition of "tokenization of real-world assets" for the first time and established a dual-track framework of "strict prohibition within the country and strict regulation outside." The China Securities Regulatory Commission simultaneously issued regulatory guidelines to open a compliance registration path for tokenized asset-backed securities based on legally compliant domestic assets issued overseas.

So, why, after institutions have genuinely entered the market on a large scale, does the crypto industry not feel the prosperity and confidence that the market expected? According to Markets, Inc. co-founder Dean Eigenmann, this can be traced back to the compromise-driven path of crypto adoption.

Dean Eigenmann stated that many who adopt the Web3 framework sincerely believe that a more moderate positioning can accelerate its adoption, and reaching a compromise with regulators can create space for the maturity of cryptocurrencies.

"The problem is that catering to the understanding of existing institutions is not a neutral act. When you reshape language to cater to regulators and attract institutional capital, you are not merely translating; you are negotiating, and you always abandon the parts they dislike the most first. For cryptocurrencies, the key here lies in: the confrontational relationship with centralized power."

As a result, what is ultimately presented is not a true adoption, but absorption. When BlackRock launched its Bitcoin ETF, it did not follow the logic of decentralization, but instead extended the logic of traditional asset management to new underlying assets. Custody rights belong to them, access must also go through their infrastructure, and price discovery is controlled by them. In this case, Bitcoin is no longer a peer-to-peer electronic cash system but merely a stock code.

The disturbing fact is that it is not institutions that have proactively chosen cryptocurrencies, but cryptocurrencies that have actively catered to them and have been reshaped by them. Every compliance framework, every licensed custody solution, and every regulated access channel is a concession cloaked in the guise of progress.

The market has also rewarded these concessions because the market does not price ideologies. It only prices liquidity, access, and regulatory clarity, which are precisely what institutional frameworks provide, but all of this comes at the expense of sacrificing the initial uniqueness of cryptocurrencies.

These issues made Dean Eigenmann realize that the initial mistake of the Web3 era was measuring success by the number of people using the technology rather than by what value the technology creates for its users. A financial system serving 50 million people who cannot access traditional banking services is more aligned with the original vision than a financial system serving 500 million people who choose new services merely because they like the new brokerage interface.

Notable venture capitalist and founder of Crucible Capital Meltem Demirors also provided a similar viewpoint: traditional finance has captured most of the benefits from the crypto economy. Previously, Meltem Demirors worked for over ten years at CeFi companies such as DCG (Grayscale's parent company) and Coinshares (Europe's largest crypto asset management company).

"If you track the flow of funds, it is clear who the winners in the cryptocurrency space are: not DeFi protocols, but the financial companies that Satoshi Nakamoto tried to replace in the Bitcoin white paper," Meltem Demirors said. "Every year, traditional financial institutions are extracting billions of dollars in assets and profits from the crypto economy—and often the economic returns are greater than those generated by the protocols that originally created value."

Taking Bitcoin ETFs as an example, asset management companies charge management fees, brokers charge channel fees, market makers profit from spreads, and custody banks charge custody fees—the entire profit chain occurs almost entirely within the off-chain financial system. The value captured by on-chain protocols is negligible.

Similarly, the growth in scale and adoption of the stablecoin market has reinforced the settlement power of payment networks and the banking system rather than the revenue models of DeFi protocols themselves.

In her view, the only way out is to establish and develop the industry's own native institutions—on-chain asset management companies, risk management firms, and underwriters—entities that can compete for treasury asset management scale and design products that serve the long-term interests of cryptocurrencies, while retaining more economic benefits within the cryptocurrency ecosystem rather than extracting it for corporate profits.

“‘Institutional adoption’ is not a mission, but a strategy for extraction. If we do not prioritize cooperation with native cryptocurrency institutions now, ‘institutional adoption’ will not be a victory but a takeover,” Meltem Demirors said.

Conclusion

For TradFi and Wall Street, this is not a decentralized experiment, but an expansion of a new asset form—a "new asset class" that can be integrated into existing compliance systems, can be custodized, can be securities, and can be distributed. This is a temporary victory.

However, looking at the flow of funds and the structure of profit distribution, it is often not DeFi protocols that truly make money, but asset management companies, custody banks, brokers, and market makers.

This is more akin to a high-efficiency institutional absorption: Crypto provides a growth narrative and technological innovation, TradFi provides capital, regulation, and distribution networks, and then takes the majority of the cash flow and profits.

Embracing is not inherently bad. But if the crypto economy ultimately only remains in a "technical outsourcing" role, losing value capture and voice, then this embrace is closer to "harvesting."

Now that the large-scale entry of institutions has become a reality, the real issue to focus on moving forward is to what extent Crypto will adopt and cater to the game rules of TradFi? How can Crypto ensure that native protocols and infrastructures capture more users and cash flow?

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