Written by: Gu Yu, ChainCatcher

Unlike previous bear market cycles, the crypto industry has fallen into a peculiar state of disconnection over the last 1-2 years, with TradFi institutions outside the industry displaying a completely different emotional state compared to the DeFi, public chain, and investor groups within the industry, raising many questions among industry observers.

On February 23, DoubleZero co-founder Austin Federa posted on X that, never before have institutions and companies been so enthusiastic about cryptocurrencies as they are now. Meanwhile, crypto natives seem to be trapped in an endless cycle of depression.

Indeed, the adoption of crypto by traditional financial institutions 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 gold, silver, and stocks being tokenized and listed on crypto exchanges like Cinbase and Binance. More importantly, the regulatory environment continues to improve—progress on the U.S. Market Structure Bill and the full implementation of MiCA in Europe have provided institutions with a clear "entry ticket."

Even the Chinese government recently introduced groundbreaking policies regarding RWA. On February 6, 2026, the People's Bank of China, in conjunction with the National Development and Reform Commission and eight other departments, issued a notice that provided a clear definition of "real-world asset (RWA) tokenization" for the first time, establishing a dual-track framework of "strictly prohibited domestically, strictly regulated overseas." The China Securities Regulatory Commission simultaneously released regulatory guidelines, paving a compliance pathway for tokenized asset-backed securities issued overseas based on legally compliant assets in China.

So why is it that, after institutions have truly entered the market on a large scale, the crypto industry has not experienced the prosperity and confidence that the market previously anticipated? According to Dean Eigenmann, co-founder of Markets, Inc., this can be traced back to the compromise adoption path of crypto.

Dean Eigenmann stated that many people adopting the Web3 framework genuinely believe that a more moderate positioning can accelerate its popularity, and compromising with regulators can create space for the maturity of cryptocurrencies.

"The problem is that catering to the existing understanding of institutions is not a neutral act. When you reshape language to accommodate regulators and attract institutional capital, you are not merely translating but negotiating, and the parts you abandon first are always those they find most objectionable. In the case of cryptocurrencies, the key is this: the relationship of confrontation with centralized power."

Thus, what ultimately presents itself is not true adoption, but absorption. When BlackRock launched its Bitcoin ETF, it did not follow the logic of decentralization but extended the logic of traditional asset management to a new underlying asset. The custody rights belong to them, access must 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 was not institutions that actively chose cryptocurrencies, but cryptocurrencies that actively catered to them and were reshaped by them. Every compliance framework, every licensed custody solution, every regulated access channel is a concession cloaked in the guise of progress.

And the market rewards these concessions, as it does not price based on ideology. It only prices based on liquidity, access, and regulatory clarity, and these are precisely what institutional frameworks provide, but all of these come at the cost of sacrificing the original 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 measuring what the technology created for its users. A financial system serving 50 million people who cannot use traditional banking services is more aligned with the original concept than a financial system serving 500 million people who choose new services simply because they like the new brokerage interface.

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

"If you track the flow of funds, it is clear who the winners in the crypto space are: not DeFi protocols, but the financial companies that Satoshi sought to replace in the Bitcoin white paper," Meltem Demirors said. "Every year, traditional financial institutions extract billions of dollars in assets and profits from the crypto economy—and often more than the economic benefits brought by the protocols that initially created value."

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

Similarly, the growth in market size and adoption of stablecoins has further strengthened the settlement power of payment networks and banking systems, rather than the revenue model 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 companies, and underwriters—these institutions can participate in the competition 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 instead of squeezing them dry for corporate profits.

"'Institutional adoption' is not a mission but a squeeze strategy. If we do not prioritize cooperation with native crypto 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 a new asset form expansion—a "new asset class" that can be integrated into existing compliance systems, can be custodied, can be securitized, and can be distributed. This is a staged victory.

However, from the perspective of capital flow and profit distribution structure, the real winners are often not DeFi protocols, but asset management firms, custody banks, brokers, and market makers.

This feels more like a high-efficiency system absorption: Crypto provides growth narratives and technological innovation, TradFi provides capital, regulation, and distribution networks, and then takes most of the cash flow and profits.

Embracing is not a bad thing. But if the crypto economy ultimately remains a "technology outsourcing" role, losing value capture and discourse power, then this embrace is closer to a "harvest."

Now that the large-scale entry of institutions has become a reality, the next real question to focus on is how far Crypto will adopt and cater to the rules of the TradFi game. How can Crypto make native protocols and infrastructures capture more users and cash flow?

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