Institutional investors are increasingly engaging with digital assets and emerging technologies such as blockchain and artificial intelligence, according to a recent report by State Street. However, there remains a divide on the integration of decentralized finance into traditional financial systems.
A recent study revealed that digital assets currently account for approximately 7% of institutional portfolios, with projections suggesting this will rise to 16% by 2028.
Most allocations are directed towards digital cash (stablecoins) and tokenized assets like equities, each garnering about 1% investment, while asset managers show greater exposure.
Institutional Investment
Source: State Street
Despite stablecoins and tokenized investments dominating current portfolios, cryptocurrencies have shown the highest returns, with Bitcoin being cited by 27% of respondents as the top-performing asset, followed closely by Ethereum at 21%.
The report indicates that private assets are the most anticipated beneficiaries of tokenization, and most institutions surveyed expect digital assets to become commonplace within the next ten years, although there is hesitance regarding the pace of adoption.
Just over half (52%) believe that 10% to 24% of investments by 2030 will involve digital or tokenized assets, but only 1% foresee a complete transition to on-chain investments.
This survey, conducted in collaboration with Oxford Economics, collected data from over 300 institutional investors regarding their utilization of digital assets, AI, and blockchain.
State Street Corporation offers institutional financial services and manages roughly $49 trillion in assets. Learn more here.
Digital Transformation Strategies: AI and Blockchain
The findings highlight the essential role of distributed ledger technology (DLT) and AI in the digital transformation frameworks of institutions. Almost all companies surveyed are utilizing or planning to implement advanced technologies to streamline processes and enhance business interoperability.
According to the survey, 29% of participants indicated that blockchain is a core component of their transformation strategies. Many are also looking to extend blockchain applications beyond investment activities to roles such as cash flow management (61%), data processes (60%), and compliance functions (31%).
Companies increasingly recognize the synergy between blockchain and generative AI as fundamental to enhancing digital transformation efforts.
The Intersection of DeFi and TradFi
Despite rising confidence in digital assets, skepticism persists regarding the total replacement of traditional trading mechanisms with blockchain technology. Nearly half (43%) of respondents predict that a blend of decentralized and traditional finance operations will become common within five years, a significant increase from 11% last year.
However, some believe that 14% of respondents do not anticipate a full transition to digital investments, an increase from 3% in 2024.
