From Automating Breaks to Predictive Ops: The Next Horizon for Investment Operations

People often discuss traditional financial services (TradFi) and crypto-based/decentralized financial services (DeFi) as if they’re inevitably converging. The conventional story is that traditional asset managers and crypto-native yield products will inch toward each other until they meet in the middle. In the process, TradFi absorbs DeFi. DeFi starts to look more like TradFi, and TradFi selectively adopts a few DeFi features as crypto “institutionalizes.”

It’s a comforting story and lets TradFi managers put a toe in the water, take it out, put it back in, and tell themselves they’re innovating. But the real story may be radically different. What if DeFi doesn’t need to meet TradFi to compete with it?

Regulation will drive the answer to that question. US institutions are used to black-and-white rules, and until recently, the regulatory picture for crypto was opaque enough to slow serious adoption. Meanwhile, crypto players kept building, getting faster, hungrier, and more technologically advanced.

As regulators draw clearer boundaries, the conditions for achieving scale could turn into a land grab, where the question shifts from pilots and partnerships to something much more direct. If TradFi doesn’t develop innovative products, DeFi will. And it will happen quickly. DeFi already has over $120 billion in Total Value Locked (TVL) as of January 2026.ⁱ

Two-speed finance

When a market innovates at two speeds, tempo becomes the core strategic advantage more than branding. Crypto-native players tend to move much faster than TradFi players realize. Entire ideas arise, get debated, and get abandoned within a single calendar year. A window can open in spring and close by year-end, with people saying, “We decided it wasn’t where the industry was going, so we abandoned the whole space.”

This pace of decision cycles is the hidden Achilles’ heel for TradFi. From regulation to risk management to culture, a traditional institution can’t just say, “Let’s give it a whirl, and if something blows up, shut it down.” They can take a year or two just to decide whether they’re going to implement a new strategy, before implementation even begins. This mindset makes sense when governance and risk culture are built to avoid crossing regulatory lines. But it’s not designed for six-month iteration loops.

DeFi easily compresses the full innovation lifecycle, in large part because, up to this point, crypto-native players operated in a regulatory vacuum. They were unconstrained enough to permit them to experiment, build, and iterate. That difference in speed is what makes regulatory clarity such a looming issue for TradFi. Once crypto regulations are clear, the floodgates can open, and the pace shifts from quarters and years to months and weeks.

Slow, moderate, and high-velocity innovation

These two speeds force a different kind of decision-making around innovation, because each rail provides its own friction and momentum for travel, creating three specific modes of innovation. Two of these modes depend on the rail, and one is a hybrid.

Mode 1 is slow because the legacy rail makes it so. For example, in the US, TradFi players have operated under an intense level of regulation for nearly 90 years, from the ‘33 Act and ‘40 Act to Sarbanes-Oxley and Dodd-Frank. Regulators in other major financial center jurisdictions tend to have equally complex and prescriptive layers of regulation. This situation accustoms TradFi players to very well-defined constraints.

Institutions may agree or disagree with the rules, but they ultimately just want to know what the rules are, so that they can operate and maximize alpha and revenue while remaining within those constraints. They must protect a decades-long track record and factor in considerations such as tens of thousands of employees, a board, shareholders, and many billions in assets under management. The common rails used by managers, broker-dealers, exchanges, clearinghouses, and the like create innovation friction.

Mode 2 acts like a controlled hybrid. We have seen many examples of TradFi institutions trying to carve out a DeFi lane that still aligns with the TradFi rails mentality. They have long since recognized that crypto has status as an investable asset class alongside others, with its own facets. They also see the operational potential of blockchain as market infrastructure.

Willingness to experiment has produced interesting results in recent years, either with TradFi players spinning up internal innovation or in pilots with crypto-native partners. Here are some examples:

• July 2025: BNY and Goldman Sachs connected BNY’s LiquidityDirect platform to Goldman’s private blockchain, enabling institutional clients to subscribe and redeem tokenized money-market fund shares, with mirror tokens on-chain representing fund ownership.ⁱⁱ
• November 2025: Clearstream launched a platform that supports the issuance, safekeeping, and lifecycle management of digital and tokenized securities inside existing regulatory perimeters, with plans for programmable securities and on‑chain settlement flows.ⁱⁱⁱ
• December 2025: DTCC ’s DTC received an SEC No‑Action Letter clearing the path for tokenized DTC‑custodied assets on pre‑approved blockchains, allowing seamless conversion between book‑entry and tokenized form for US Treasuries, equities, and ETFs as on‑chain collateral.^iv

At the same time, a common theme between these projects has been containment. They show TradFi companies participating without changing how they make decisions or to what degree they tolerate failure.

Mode 3 is characterized by high velocity, benefitting from the DeFi rail’s ability to compound speed. Crypto-native players are tech companies without much of the institutional baggage that TradFi players must carry. By not offering heavily regulated products such as listed securities, they have been able to operate in a much less constrained regulatory vacuum.

If they could avoid blatant financial crimes, regulatory ambiguity gave them free rein to experiment with new yield-generating financial products and strategies with creativity. Their tech-first approach made them robust, scalable, cost-efficient, adaptable, and flexible without having to establish themselves as a hedge fund, a bank, a money exchange, etc.

As regulators look at the industry through a more crypto-friendly lens, DeFi products can add enough of a level of safety to become more mainstream. The DeFi rail is like a bullet train, propelled by entrepreneurial, creative, and innovative energy. TradFi companies now need to ask whether their legacy rail mentality can support competing with a bullet train.

Competitive scenarios