Institutional investors are increasing their engagement with digital assets and emerging technologies like blockchain and AI, as highlighted in a recent State Street report. However, many remain divided on the feasibility of integrating decentralized finance with traditional markets.
The study reveals that digital assets currently account for around 7% of institutional portfolios, a figure projected to rise to 16% by 2028.
Most investments are clustered in digital cash (stablecoins) and tokenized versions of listed securities or fixed income, with respondents designating about 1% of their portfolios to each, while asset managers report higher exposure.
While stablecoins and tokenized assets form the majority of current holdings, cryptocurrencies have yielded the highest returns. Bitcoin was identified by 27% of respondents as the best-performing asset, with Ethereum following closely at 21%.
The report also noted that private assets are viewed as the primary candidates to benefit from tokenization first, with many institutions anticipating that digital assets will achieve mainstream status in the next decade, although they are cautious about the pace of adoption.
Just over half (52%) of participants expect 10% to 24% of all investments by 2030 to occur through digital or tokenized instruments, while only 1% predict that the majority of investments will transition entirely on-chain.
The survey, conducted with Oxford Economics, consulted over 300 institutional investors regarding their utilization of digital assets, AI, and blockchain, as well as their forthcoming capital allocations.
State Street Corporation offers institutional financial services. According to the firm, as of June 30, it managed approximately $49 trillion in assets under custody or administration and $5.1 trillion under management across over 100 markets.
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Digital transformation strategies: AI and blockchain
The study indicates that distributed ledger technology (DLT) and artificial intelligence are now essential components of institutions’ digital transformation strategies.
Nearly all surveyed organizations have initiated or are preparing to implement strategies that leverage advanced and emerging technologies to automate processes, eliminate friction points, and enhance interoperability within business operations.
According to the report, 29% of respondents indicated that blockchain is a core aspect of their transformation plans. Many are also broadening the application of blockchain beyond investment operations, using it for cash flow management (61%), business data processes (60%), and legal or compliance functions (31%).
Institutions are increasingly viewing blockchain and generative AI as complementary foundations for a comprehensive digital transformation strategy.
Approximately half (45%) agreed that recent advancements in generative AI will hasten the development of digital assets since GenAI tools can create smart contracts, blockchains, and tokens more efficiently, securely, and affordably.
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DeFi meets TradFi in transition
Despite a growing trust in digital assets, many firms are skeptical about whether blockchain-based systems will entirely supplant traditional trading and custody infrastructures.
Almost half of respondents (43%) believe that hybrid decentralized and traditional finance investment operations will become standard within five years, an increase from 11% a year prior.
However, 14% of respondents expressed skepticism that digital investment systems will ever completely replace traditional trading and custody, a significant rise from 3% in 2024.
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