A shift is underway in the world of institutional investments, with decentralised finance (DeFi) gaining traction as a viable and attractive option. Nickel Digital Asset Management, a London-based firm, has revealed key insights from its global research, which sheds light on the evolving perspectives of institutional investors and wealth managers.
The investment manager‘s study encompassed a range of financial experts from the US, UK, Germany, Switzerland, Singapore, Brazil and the UAE. The findings indicate a significant shift in sentiment, as a substantial 81 per cent of respondents acknowledged a growing allure in DeFi investment opportunities. Notably, 23 per cent of participants went a step further, expressing a heightened appeal for DeFi options.
These findings highlight a changing landscape in which traditional financial players are beginning to recognise the potential of DeFi protocols and platforms. While the evident interest grows, the research also highlights challenges requiring resolution before full-scale institutional involvement can take place.
Liquidity concerns, coupled with challenges related to know your customer (KYC) processes and anti-money laundering (AML) regulations, emerged as primary roadblocks. Nearly half of the participants (47 per cent) cited concerns about liquidity in DeFi investments and its potential impact on operational efficiency.
Similarly, an equal number highlighted the complexities surrounding KYC and AML compliance in the context of decentralised finance.
The study also revealed a need for regulatory clarity, with 44 per cent of respondents advocating for more defined regulatory frameworks before institutional investors can confidently embrace DeFi. Additionally, apart from regulatory considerations, factors such as technology concerns (40 per cent), secure custody solutions (37 per cent), and uncertainties surrounding taxation (34 per cent) emerged as significant influences shaping investment decisions within the DeFi ecosystem
DeFi potential
Anatoly Crachilov, CEO and founding partner at Nickel Digital Asset Management, acknowledged the rising recognition of DeFi’s potential, while also addressing the challenges ahead.
“DeFi solutions demonstrated the resilience of decentralised applications during last year’s ‘mass extinction’ of centralised entities. The market now increasingly recognises DeFi’s value proposition and the growth opportunities over the coming years.
“However, there remain barriers to wider engagement in DeFi with liquidity, KYC and AML concerns top of the agenda and these concerns will need to be addressed for institutions to engage on a broader scale. Nonetheless, these can be resolved, and Nickel has already steps to mitigate these risks in our operations and it would be great to see them gain wider adoption in the sector.”
The study also highlights the specific segments within institutional investors expected to witness substantial increases in DeFi investments. Notably, wealth managers and pension funds stand out, with 47 per cent expressing the belief that wealth managers’ investment levels will significantly rise.
Similarly, 46 per cent share the same sentiment about pension funds. Expected to follow suit are sovereign wealth funds and hedge funds, with 37 per cent and 34 per cent, respectively, anticipating a significant increase in their involvement. Moreover, family offices project a notable surge, with 30 per cent foreseeing a substantial rise in their DeFi investments.
As the financial sector adapts to the changing landscape, the reconciliation of innovation with compliance emerges as a pivotal theme shaping the trajectory of decentralised finance.
