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Why institutional adoption isn't the same as decentralization

Wall Street has adopted crypto's technology. Whether it has adopted the idea behind crypto is a different question.

9 min watch · Industry & Adoption · Always free

For years, the promise was a financial system with no banks, no middlemen and no Wall Street. Now BlackRock, Fidelity, J.P. Morgan and some of the world's biggest financial institutions are deeply involved in digital assets, and a crypto investor could look at that and say crypto won. In one sense, that would be right.

This entry is about why that is probably only half the answer. Wall Street can use blockchain technology to make the existing financial system more efficient without needing decentralization, and putting an asset on a blockchain doesn't automatically make it decentralized. The question it leaves is who will actually control the financial system of the future.

For education only, not financial advice. Crypto assets are volatile and you can lose all the money you invest.

Transcriptlightly edited

Wall Street comes to crypto

Hi, I'm Viv, and welcome to my notebook. Here's something I've considered a lot recently. Is institutional adoption actually a victory for crypto, or the beginning of crypto losing its original purpose? What was its original purpose, and does that still hold true today?

For years, we were told that crypto was going to change finance forever. No banks, no middlemen, no Wall Street. A financial system where you could own your own assets directly, transfer money globally and participate without needing a permission from a traditional institution.

And then something rather ironic happened. Wall Street showed up. The same people who slammed Bitcoin, Ethereum and all crypto as a Ponzi, a scam, something used only by criminals. Suddenly, we've got BlackRock, Fidelity, J.P. Morgan and some of the world's biggest financial institutions are now deeply involved in digital assets. Bitcoin has moved from being something dismissed by traditional finance to an asset that major institutions want exposure to.

And so my question is, is this actually the victory crypto was waiting for? Or are we watching crypto become the very thing it was created to challenge? Because I think the answer is a bit of both.

Why it looks like a win

Let's start with the obvious. Institutional adoption is incredibly bullish for crypto. For years, one of the biggest criticisms of Bitcoin and digital assets was they were too risky, too immature and too difficult for serious investors to access.

Now that's changed. Large financial institutions are building products around crypto. ETFs have made access dramatically easier. Banks are exploring tokenization. Stablecoins are becoming increasingly important for moving value around the world. And traditional financial infrastructure is increasingly connecting itself to blockchain networks.

So if you're a crypto investor, you could look at this and say, "We won. Big money has landed. We were right." In one sense, you would be right. The financial establishment that once criticized crypto is now trying to participate in it.

Roads that keep their tollbooths

But here's where it gets interesting. What exactly are they participating in? Because there's a big difference between adopting crypto and adopting the philosophy behind crypto.

Wall Street doesn't necessarily need Bitcoin to replace banks. It doesn't need Ethereum to replace financial institutions. And it doesn't need decentralization to eliminate intermediaries. It can simply use blockchain technology to make the existing financial system more efficient. And that is a very different outcome.

Imagine you invested in a revolutionary new road system designed to eliminate tollbooths. 20 years later, the government and the biggest tollbooth companies adopt your roads. The roads are successful. They're faster. They're more efficient. But the tollbooths are still there.

That's potentially what we're seeing with crypto. The technology gets adopted. But the power structures remain. And I think this is one of the biggest questions facing the crypto industry over the next decade. Does crypto actually decentralize finance? Or does it simply modernize it?

Tokenization isn't decentralization

Because tokenization is a perfect example. We hear a lot about tokenizing stocks, bonds, real estate and other financial assets. This could be enormous. Imagine securities settling almost instantly. Imagine assets being programmable, or markets operating 24/7. We're starting to see that already. Imagine dramatically lowering settlement costs and fewer layers of reconciliation. This is a genuine technology improvement.

But here's the catch. Putting an asset on blockchain doesn't automatically make that asset decentralized. You can put a centralized financial system on a blockchain. You can have a token that trades 24/7 while the underlying asset is still controlled by a relatively small number of institutions. So we need to stop confusing blockchain adoption with decentralization. They're not the same thing.

How much power the middlemen get

And there's another irony here. The more successful crypto becomes, the more valuable the infrastructure around it becomes: custodians, exchanges, ETFs, banks, asset managers, stablecoin issuers, payment companies, data providers. And increasingly, companies that sit between ordinary investors and the underlying blockchain.

That's not necessarily bad. In fact, it's probably inevitable. Most people don't want to manage private keys. They don't want to worry about seed phrases. They don't want to accidentally send their life savings to the wrong address. And institutions certainly aren't going to manage billions of dollars the same way an individual crypto enthusiast does. So intermediaries aren't necessarily the enemy. The question is, how much power do we ultimately give them?

Because that brings us back to the original promise of crypto. Bitcoin didn't emerge because people thought banks needed a slightly better database. It emerged from a deeper idea, that individuals should be able to own and transfer value without requiring permission from a central authority. And that idea is still incredibly powerful.

In fact, I would argue that the institutionalization of crypto made that idea even more important. Because if the entire crypto ecosystem becomes dependent on a handful of exchanges, custodians, ETFs and financial institutions, then we've potentially recreated the same concentration of power that crypto was designed to challenge.

Somewhere in the middle

That's where I think the future gets really interesting. I don't think the future is going to be "crypto replaces traditional finance." And I don't think it's going to be "traditional finance kills crypto." I think it's going to be a hybrid.

Traditional finance will absorb some of the best technology that crypto has created. Crypto will absorb some of the capital, regulation and infrastructure of traditional finance. And somewhere in the middle, we're going to find out which parts of the original crypto philosophy actually matter.

Maybe Bitcoin doesn't need to replace the banking system. Maybe its role is simply to provide an asset that exists outside any single government or institution, somewhere where people can choose to control their own value. Maybe stablecoins become the bridge between traditional money and blockchain networks. Maybe tokenization becomes the infrastructure underneath the global financial markets. And maybe decentralized finance doesn't replace banks at all. Maybe it simply forces banks to become better.

And honestly, I think that's a much more interesting future than the simplistic idea that one side has to destroy the other.

Who controls the financial system

Because here's my final thoughts. The biggest success for crypto may not be destroying Wall Street. It may be forcing Wall Street to change. But we shouldn't confuse Wall Street adopting crypto with crypto achieving its original mission. Those are two very different things.

The technology may become mainstream. The asset may become mainstream. The infrastructure may become mainstream. But the real test is whether individuals ultimately gain more control, more choice and more financial freedom as a result. Because if crypto simply gives us faster tokenization, faster transactions, 24/7 markets, but concentrates power in the same institutions that controlled finance before, then we've built a better financial system, but not necessarily a freer one.

And I think that's the debate we should be having. Not "Is crypto going to zero?", not "Is Bitcoin going to a million dollars?", but something much more important. Who is actually going to control the financial system of the future?

Because crypto may have started as a rebellion against Wall Street. And ironically, Wall Street might be one of the biggest reasons crypto succeeds. The question is whether crypto changes Wall Street or whether Wall Street changes crypto.

For me, while the purists may have wanted to kill banks and Wall Street, I don't believe that was realistic. What we get is better financial systems, and that has to be positive, plus, very importantly, we get a choice: an opportunity to transact in a decentralized manner, in your control, without permission from banks or anyone else. That, for me, is still the core mission of crypto, and it still stands today.

Thanks for spending a few minutes with me. I genuinely love to hear your thoughts. So if this notebook sparks something for you, leave a comment below and let's continue the conversation. And I'll see you on the next notebook.

Supporting notesdrawn from the transcript

Crypto used to be called too risky, too immature and too difficult for serious investors to access, and that has changed. ETFs have made access dramatically easier, banks are exploring tokenization, and stablecoins are becoming increasingly important for moving value around the world. Wall Street doesn't necessarily need decentralization for any of it, though. It can use blockchain technology to make the existing system more efficient, like a road system built to get rid of tollbooths that the biggest tollbooth companies end up adopting, with faster roads and the tollbooths still there. Tokenization is the clearest case. A token can trade 24/7 while the asset underneath it is still controlled by a relatively small number of institutions, so blockchain adoption and decentralization aren't the same thing.

Intermediaries aren't necessarily the enemy. Most people don't want to manage private keys or worry about seed phrases, so custodians, exchanges and asset managers are probably inevitable, and the question is how much power they're given. If the whole ecosystem comes to depend on a handful of them, the concentration of power crypto was designed to challenge could be rebuilt. The likelier future is a hybrid, with traditional finance absorbing some of crypto's best technology and crypto absorbing some of the capital, regulation and infrastructure of traditional finance. The test is whether individuals end up with more control, more choice and more financial freedom, including the choice to transact, under their own control, without permission from a bank or anyone else.

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Why institutional adoption isn't the same as decentralization

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