Beyond DeFi: The Future of Finance in the Blockchain Era

The decentralised finance (DeFi) sector has evolved from an experiment within the crypto ecosystem into a phenomenon that the financial industry can no longer ignore. According to Yahoo Finance, the total value locked (TVL) in DeFi protocols reached USD 237 billion in the third quarter of 2025.

The DeFi ecosystem continues to grow, yet most protocols still operate without a clearly defined regulatory framework, limiting adoption by businesses and public administrations.

The European Union has responded with a regulatory framework that combines MiCA, the Markets in Crypto-Assets Regulation, eIDAS2 for verifiable digital identity, and DORA, the Digital Operational Resilience Act. The transition from open DeFi towards institutional models with legal validity is shaping the future of finance in the blockchain era.

What Is DeFi and What Does It Mean for the Financial Sector?

DeFi refers to a set of financial markets and services that operate through smart contracts on blockchain networks. These protocols automate functions that traditionally require intermediaries such as banks or clearing houses, enabling asset exchange, financing, and collateral management in a programmable manner.

The architecture is organised into layers. At its foundation is a public blockchain that records all transactions. On top of it operate smart contracts, which execute the economic logic of each protocol. Decentralised applications (dApps) provide the user interface through which participants interact within the Web3 ecosystem.

The functions replicated by these protocols include the exchange of crypto-assets through decentralised exchanges (DEXs), crypto-collateralised lending, staking for transaction validation, and the issuance of stablecoins designed to maintain a stable value against currencies such as the euro or the US dollar. Together, these elements form a parallel financial infrastructure characterised by low barriers to entry and high composability between protocols.

However, many implementations still retain significant degrees of centralisation in governance or software development. European regulators continue to question the extent to which these systems are genuinely decentralised.

The debate within the financial sector is now focused on which elements of this architecture will be integrated into legally recognised infrastructures to create a form of institutional DeFi.

Decentralised Finance: Benefits and Risks for Organisations

Decentralised finance offers organisations operational efficiency, broader access to global financial services, and real-time transparency. However, corporate adoption remains constrained by cybersecurity risks, regulatory uncertainty, and the absence of robust identity controls.

Key benefits include the automation of settlement and collateral management processes through smart contracts, granular transparency regarding positions and protocol rules, and the reduction of human error in operational execution. Protocol composability also enables the creation of sophisticated financial products built upon foundational components already tested by other ecosystem participants.

According to joint reports published in 2025 by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), DeFi lending activities within the European Union amount to approximately €1.8 billion, while staking activities represent around €3.6 billion. With just 13 protocols accounting for more than 80% of activity, a failure in any one of them could affect the entire ecosystem.

Cybersecurity risks associated with smart contracts, cross-chain bridge attacks, and the lack of efficient and secure KYC processes for customer identity verification remain significant challenges in preventing financial crime and money laundering.

Blockchain Applied to Finance: The Shift Towards Institutional DeFi

Institutional DeFi combines the programmability and transparency of decentralised finance with the risk management, governance, and compliance frameworks associated with regulated financial infrastructure.

The tokenisation of traditional assets such as bonds, equities, and deposits enables near-instant settlement and fractional ownership. The European Central Bank’s digital euro project, currently in its preparation phase since November 2023, will complement cash with central bank money in electronic form. Meanwhile, MiCA-regulated stablecoins bring stability to the ecosystem through issuers subject to prudential requirements. Together, these developments are shaping a digitally enabled financial ecosystem supported by institutional frameworks.

According to McKinsey, the global volume of tokenised assets is expected to reach between USD 2 trillion and USD 4 trillion by 2030, while Boston Consulting Group estimates the figure could rise to USD 16.1 trillion. For SMEs, blockchain-based tokenisation opens new avenues for alternative financing, including tokenised promissory notes and programmable factoring, creating opportunities for businesses that have traditionally relied on banking intermediaries.

The Regulatory Context: DeFi, MiCA and eIDAS2

MiCA regulates crypto-assets and their service providers, eIDAS2 introduces legally recognised digital identity, and DORA imposes operational resilience requirements on financial institutions. Together, these regulations define the conditions under which decentralised finance can achieve legal recognition within the European Union.

MiCA covers stablecoins, exchanges, custodians, and trading platforms, with full application from December 2024 and transitional periods extending until July 2026. The regulation does not directly apply to DeFi protocols without an identifiable provider, although centralised access points such as interfaces and aggregators remain subject to supervision.

Under eIDAS2, Member States must provide a European Digital Identity Wallet (EUDI Wallet) for citizens and businesses before the end of 2026. Smart contracts may require participants to authenticate themselves using verifiable credentials issued within this framework, enabling traceability and legal accountability without turning each transaction into a cumbersome administrative process.

The European Systemic Risk Board (ESRB), ESMA, and the EBA all agree that DeFi is likely to evolve towards models compatible with consumer protection, financial stability, and market integrity. Organisations operating within these hybrid models will require infrastructures that already comply with this regulatory framework.

ISBE: The Infrastructure Bringing Legal Certainty to the Future of DeFi

The Spanish Blockchain Services Infrastructure (ISBE) enables businesses and public administrations to apply decentralised finance principles within an environment designed for regulatory compliance, participatory governance, and cross-border legal validity under eIDAS2.

ISBE incorporates compliance with both the General Data Protection Regulation (GDPR) and eIDAS2 by design, at both technical and governance levels. Requirements stemming from MiCA, DORA, the Data Act, the Spanish Securities Market Law (LSMV), ENS, and NIS2 have been embedded into its architecture. All validator nodes are subject to governance rules and cybersecurity requirements, enabling legal entities to be linked to blockchain-registered addresses and allowing audited smart contracts to operate with legal validity.

For SMEs, ISBE provides an entry point into blockchain-based finance without the need to build proprietary infrastructure. According to Cotec and Alastria, 47% of Alastria members are SMEs, and the Community of Madrid has allocated €2 million in grants to support 20 pioneering companies developing the first use cases. Available tools include open-source smart contracts, APIs for integration with existing systems, and blockchain-based traceability and Supply Chain Finance services ready for deployment.

Does your organisation work with financing, tokenisation, or collateral management? Discover how ISBE enables the application of decentralised finance principles with legal validity and compliance with European regulations. We invite you to watch the ISBE video to learn more about how the infrastructure works, its real-world use cases, and the impact it is already generating across businesses and public administrations.

Frequently Asked Questions About Decentralised Finance and Blockchain

Is It Possible to Implement DeFi on a Permissioned Blockchain Network Such as ISBE?

Implementing DeFi mechanisms on a permissioned network such as ISBE is entirely feasible. Most common functions, including automated liquidity markets, collateralised lending, and token issuance, can operate on networks that support smart contracts. The key difference lies in who validates transactions, who deploys contracts, and the identification and governance requirements applied to participants.

How Does the GDPR Right to Be Forgotten Affect Immutable DeFi Transactions?

The tension between the GDPR right to be forgotten and the immutability of DeFi transactions can be mitigated by keeping personal data off-chain and recording only encrypted hashes or digital fingerprints on the blockchain. Permissioned networks with identifiable responsible parties and clear governance frameworks make it easier to meet data protection obligations than public networks without access controls.

What Are Oracles and Why Are They the Critical Security Point in Decentralised Finance?

In decentralised finance, oracles are mechanisms that provide smart contracts with information from the external world, such as asset prices or interest rates. Incorrect or manipulated data can trigger large-scale liquidations. The design, decentralisation, and auditability of these mechanisms determine the robustness of any DeFi protocol and significantly influence institutional trust.

Can an SME Access Decentralised Financing Without Using Traditional Banking Services?

In theory, SMEs can access decentralised financing without traditional banking intermediaries, although significant limitations remain today. EBA and ESMA reports confirm that European credit institutions currently have very limited participation in DeFi lending. The most realistic short- and medium-term scenario combines tokenised financing products structured by regulated entities with operational execution through smart contracts running on permissioned networks.

What Is the Difference Between a Stablecoin and the Digital Euro in the DeFi Ecosystem?

The distinction between a stablecoin and the digital euro lies primarily in the issuer and the associated risk profile. Stablecoins are liabilities issued by private entities and therefore carry insolvency risk, although they are regulated under MiCA. The digital euro, by contrast, would be a liability of the Eurosystem, free from credit risk, designed to preserve monetary sovereignty and guarantee universal access to public money in the digital economy.