Institutional investors are deepening their involvement in digital assets and recent technologies such as blockchain and artificial intelligence, according to a recent report from State Street – although many remain divided on whether decentralized finance will ever be able to fully merge with established markets.
The test showed that digital assets currently account for around 7% of institutional portfolios, and this number is expected to raise to 16% by 2028.
Most investments are focused on digital cash (tablecoins) and tokenized versions of listed equities or fixed income, with respondents allocating about 1% of their portfolios to each, with asset managers maintaining greater exposure.
While stablecoins and tokenized assets make up the majority of current holdings, cryptocurrencies have produced the most significant gains. Bitcoin topped the list for 27% of respondents as the best performing asset, followed by Ethereum at 21%.
The report also noted that private assets continue to be the first to benefit from tokenization and that the majority of surveyed institutions expect digital assets to become mainstream over the next decade; however, they remain cautious about the rate of adoption growth.
Just over half (52%) of respondents expect that between 10% and 24% of all investments will be made via digital or tokenized instruments by 2030, while only 1% predict that the majority of investments will move exclusively online.
The survey, conducted jointly with Oxford Economics, polled over 300 institutional investors on how they are leveraging digital assets, artificial intelligence and blockchain, and where they are allocating capital next.
State Street Corporation provides institutional financial services. According to to the company, as of June 30, it oversaw approximately $49 trillion in assets held or administered and $5.1 trillion under management in more than 100 markets.
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Digital transformation strategies: AI and blockchain
The study also shows that distributed ledger technology (DLT) and artificial intelligence are now critical to institutions’ digital transformation strategies.
Almost all of them examined companies have launched or are planning strategies to leverage advanced and emerging technologies to automate processes, remove friction points and improve interoperability between business operations.
According to the report, 29% of respondents said that blockchain is an integral part of their transformation plans. Many are also expanding their apply of blockchain beyond investment operations, using it to manage cash flow (61%), business data processes (60%), and legal or compliance functions (31%).
Institutions are also increasingly viewing blockchain and generative AI as complementary foundations for a broader digital transformation strategy.
About half (45%) agreed that recent advances in generative AI will accelerate the development of digital assets because GenAI tools can create intelligent contracts, blockchains and tokens faster, more securely and cheaper.
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In the transition period, DeFi meets TradFi
Despite growing confidence in digital assets, many companies doubt that blockchain-based systems will fully replace established trading and custody infrastructure.
Nearly half of respondents (43%) expect hybrid decentralized and established finance investment operations to become mainstream within five years, up from 11% a year ago.
However, 14% of respondents he said they do not believe that digital investment systems will ever fully replace established trading and custody services, a piercing raise from 3% in 2024.
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