Crypto Current #91

"What's stopping institutions from investing in crypto?" Over eight+ years of conversations with sophisticated and institutional investors, DACM's Executive Chairman and Chief Investment Officer, Richard Galvin, has heard the same three concerns surface repeatedly:

Systemic risks – particularly around Tether's USDT and stablecoin backing
Unclear revenue models – tokens are simply too difficult to value
Regulatory uncertainty – and in some jurisdictions, outright hostility

As noted in Crypto Current #81, the GENIUS Act is beginning to remove uncertainty around stablecoins by establishing a clear operating framework. And as covered last week, revenue-generating projects like Ethena are drawing increasing interest from institutional investors. As a result, the first two concerns are beginning to fade.

This week, the SEC's "Project Crypto" announcement signals that the agency will play a central role in addressing regulatory uncertainty—while the CLARITY Act and other forthcoming measures are set to further ease longstanding headwinds.

The announcement comes on the heels of the President’s Working Group on Digital Asset Markets releasing a comprehensive Digital Assets Report. That report calls for positioning the U.S. as a global leader in digital asset markets, through coordinated action across agencies—including the SEC and CFTC—and recommends a fit‑for‑purpose market structure framework, full regulatory clarity on registration, custody, trading, and safe harbors to support innovation at scale. These are major shifts in the world’s largest capital market—and they could be widely underestimated amid today’s polarized political and media environment.

What's happening in crypto?

Crypto markets rebounded into the end of the week following Trump’s Executive Order allowing crypto and other alternative assets to be included in 401(k) plans. The news sparked outperformance in both DeFi tokens and “dino coins,” as investors digested a wave of positive regulatory developments and the prospect of broader investor access.

Chart of the week

Source: Token Terminal

What is Decentralized Finance (DeFi), really?

Before unpacking the SEC’s latest actions and their implications for DeFi, it’s worth revisiting the key building blocks of the DeFi ecosystem. At its core, DeFi functions as self-operating financial infrastructure—permissionless 'plumbing' that enables open access to a range of financial services:

Lending protocols: Instant loans, 24/7—deposit collateral, borrow immediately using onchain verification rather than clunky credit checks and paperwork (Aave manages $5B+, Maple focuses on institutional lending)
Decentralised Exchanges (DEX) using Automated Market Makers (AMM): Vending machines for trading—insert any token, receive instant swaps using mathematical formulas instead of order books (Uniswap processes $50B+ monthly volume executed via smart contracts, replacing traditional market makers)
Liquid staking: Like depositing gold in a vault and getting tradeable certificates—your assets secure the blockchain network while earning ~5-12% annually, but you receive tokens representing your stake that can be used as collateral elsewhere (Lido manages $30B+ in staked ETH)
Perpetual futures DEX marketplaces: Self-operating futures exchanges where anyone can create new markets—trade with leverage 24/7 without traditional clearing houses or settlement delays (Hyperliquid and dYdX process billions in derivatives volume, settling instantly onchain)

No longer alternative: DeFi as the infrastructure of modern markets

When SEC Chair Paul Atkins compares today's moment to the 1960s paperwork crisis—where physical stock certificates wheeled through Wall Street gave way to electronic ledgers— he's declaring that automated, intermediary-free markets aren't a regulatory problem but the natural evolution of finance. "We should not interpose intermediaries just for the sake of forcing intermediation where markets can function without them," Atkins stated.

This week's liquid staking guidance also proves the SEC is serious about getting into the weeds. By explicitly declaring that protocols like Lido, which provide a liquid staking solution for Ethereum, aren't securities issuers but providers of "administrative and ministerial" services, they're showing they understand how DeFi works—and are willing to accommodate it.

Project Crypto's vision goes beyond legitimizing these protocols—it erases the distinction between DeFi and TradFi entirely. Atkins envisions "super-apps" where SEC-registered venues offer everything under one roof: traditional securities, tokenized stocks, crypto assets, staking, and lending. Not DeFi or TradFi, just "onchain finance."

Stepping back to consider the possible implications, it starts with, for example, centralised exchanges like Coinbase integrating decentralised marketplaces like Uniswap natively, or Charles Schwab offering Aave yields alongside traditional money market funds. When Atkins talks about "unleashing onchain software systems," he's describing a world where Uniswap's model becomes how the NYSE operates.

The "innovation exemption" is particularly telling. Rather than forcing protocols through existing frameworks, the SEC will let them operate with principle-based conditions—essentially acknowledging that code-based markets work differently and shouldn't pretend otherwise. No more "decentralization theater" where protocols pretend nobody's in charge.

This subtle shift closely resembles traditional finance adopting DeFi. The protocols that survived years of regulatory hostility aren't outliers anymore. They're the blueprint for how traditional markets will function onchain. When everything moves to blockchain rails, the distinction between centralized and decentralized becomes meaningless. There's just efficient and inefficient, intermediated and direct, slow and instant.

The opportunity is becoming clearer: protocols that have continued processing billions—even amid regulatory uncertainty—are now increasingly seen as potential foundations for future financial infrastructure. Not as an alternative system, but as what could ultimately become the system itself.

Subscribe now

Established in 2017, DACM is an institutional investor focused on the digital asset sector. Our team invest across the digital asset sector, from early-stage venture partnerships to listed and derivative markets. DACM has developed a fundamental investment philosophy designed for family office and institutional investors, tested across multiple market cycles.

LEARN MORE

IMPORTANT NOTICE

This document has been prepared by Digital Asset Capital Management Inc (DACM, and together with its affiliates, related entities and subsidiaries, referred to as ‘we’, ‘our’ or ‘us’). It is for distribution to qualifying professional investors only to the extent permitted by law. It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject a DACM entity to any registration or licensing requirement within such jurisdiction.

This document is provided solely to recipients who are expressly authorized by DACM to receive it. If you are not so authorized you must immediately delete or destroy it.

DACM is registered as an ‘approved manager’ by the British Virgin Islands Financial Services Commission (FSC). It and any DACM managed fund is not licensed or subject to supervision of FSC or any other regulatory authority outside the British Virgin Islands, such that the requirements considered necessary for the protection of investors that apply to regulated funds in the British Virgin Islands do not apply to DACM or any DACM managed fund. This document has not been reviewed or approved by FSC or any other regulatory authority in any jurisdiction.

General information only. No advice or recommendation. This document does not constitute general advice or personal advice by DACM or any of its affiliated entities or funds in relation to a potential investment in any financial product. It is a general communication and is intended to be educational in nature. It is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments, funds, coins or tokens (whether or not subject to securities regulation) or to participate in any particular trading strategy. In Australia, to the extent that this document may contain financial product advice, it is given by DACM Australia Pty Ltd ABN 50 624214 777 (DACM Australia), as corporate authorised representative No. 001293214 of Quay Wholesale Fund Services Pty Ltd AFSL 528526, only to ‘wholesale clients’ as defined under the Corporations Act 2001 (Cth). This document is not authorized for distribution to ‘retail clients’ as defined under the Corporations Act. To the maximum extent permitted by law, neither DACM Australia or Quay, nor their respective directors, employees or agents, accept any liability for any loss arising in relation to this document. Provision of this document is not, and should not be considered as, a recommendation in relation to an investment in any entity or that an investment in any entity is a suitable investment for any specific person. It does not take into account any person’s particular investment objectives, financial situation or needs.

Investment suitability. Recipients should make their own enquiries and evaluations they consider appropriate to determine the suitability of any investment (including regarding their investment objectives, financial situation, and particular needs) and should seek all necessary financial, legal, tax and investment advice. An investment in a DACM managed fund is subject to the fund’s offering memorandum, term sheet or other disclosure document, together with its memorandum and articles of association. Such an investment may be deemed speculative and high risk and should not be regarded as a complete investment program. Digital assets are subject to a range of specific risks associated with their particular features, in addition to the risks of investing in funds or financial assets generally, such as certain regulatory, technology, custody, price, valuation, liquidity, cybersecurity, exchange and market risks. An investment in a DACM fund may present a greater risk to an investor than investment in a regulated fund in the British Virgin Islands or elsewhere. The funds’ investments are subject to substantial market fluctuations and there can be no assurance that appreciation will occur or that material losses will not be realized. The value of investments may fall as well as rise. Past performance is not an indicator of future performance. DACM funds that are open for subscriptions are only available to qualifying professional or accredited investors in selected jurisdictions where an offer of shares is authorized under applicable law and the terms of the offering memorandum. They are designed only for experienced and sophisticated investors who are able to bear the risk of the substantial impairment or loss of an investment in the fund.

Material interests. We and our shareholders, directors, officers and/or employees may have material holdings in the investment funds, projects, coins or tokens referred to and may otherwise be interested in transactions that you effect in those funds. Our actual investment positions may not reflect some or all of the views presented due to a range of possible factors, such as client or fund investment restrictions, liquidity factors, portfolio rebalancing and transaction costs, among others.

No liability. DACM, its affiliated entities and funds, and their respective directors, related parties, representatives and employees, do not accept any liability for the results of any actions taken or not taken on the basis of information in this document, or for any misstatements, errors or omissions negligent or

otherwise, to the maximum extent permitted by law. No legal or other commitments or obligations shall arise by reason of the provision of this document or its contents except to the extent required by law.

Incomplete information. This document contains selected information and does not purport to be all-inclusive or contain all relevant information in relation to its subject matter. The information has not been independently verified and is provided on the basis that it will not be relied upon and that the recipient is capable of making its own independent assessment as to the validity and accuracy of the financial assumptions, data, results, calculations and forecasts contained, presented or referred to in the document, and the economic, financial, regulatory, legal, taxation, accounting and other implications of such. No independent third-party audit or review has been obtained or verified as having been undertaken by any third party of the sources, financial assumptions, data, results, calculations and forecasts contained, presented or referred to in this document. DACM does not undertake to update or keep current any information in the document.

Links. This document may provide links to websites and when you click on one of these links, you may be redirected to another provider's website. The inclusion of any link does not imply our endorsement or our adoption of the statements on the linked site or of the operator of the site. Linked sites and their providers are not controlled by us, and we are not responsible for their actions or the contents or the proper operation of any linked site. The links may not remain current or be maintained. We make no guarantees or representations as to, and shall have no liability for, any electronic content delivered by any third party, including, without limitation, the accuracy, subject matter, quality, sequence or timeliness of any electronic content.

Forward statements. This document may contain forward-looking statements, forecasts, historical performance, estimates, projections and opinions (Forward Statements). No representation is made or will be made that any Forward Statements will be achieved or are correct. Actual future results and operations could vary materially from the Forward Statements. Any projections or statements of past performance are provided for general reference purposes and Forward Statements may be based on assumptions relating to the general economy, markets or other factors beyond the control or knowledge of DACM. No representation is given that the assumptions disclosed in this document upon which Forward Statements may be based are reasonable, or that any prices or valuations provided represent DACM’s internal records or that a transaction can or could have been be effected at those prices or values. Any opinions expressed in this document may change without notice and may differ or be contrary to opinions expressed by other DACM representatives or documents. Any statements or data attributed to a third party represent DACM’s interpretation and have not been reviewed by the third party. Facts and circumstances may change and the contents of this report may become outdated or incorrect as a result.

Proprietary information. This document and its contents (including all DACM intellectual property) are propriety to DACM, and must not be reproduced, delivered or disclosed, in whole or in part, to any party other than the authorized recipient to whom this document is addressed, except with the prior written approval of DACM. Images or other data sourced from third parties may contain objects, data or elements that are protected by third-party copyright, trademarks and other intellectual property rights.