According to a recent report from State Street, institutional investors are increasing their engagement with digital assets and emerging technologies such as blockchain and AI, although many remain uncertain about the potential for decentralized finance to fully integrate with traditional markets.
The study indicates that digital assets currently account for approximately 7% of institutional portfolios, a figure projected to rise to 16% by 2028.
Most investments are focused on digital cash (stablecoins) and tokenized equities or fixed income, with respondents allocating around 1% of their portfolios to each category, while asset managers hold even greater exposure.
While stablecoins and tokenized assets make up the majority of current holdings, cryptocurrencies have provided the highest returns. Bitcoin was identified by 27% of respondents as the best-performing asset, followed by Ethereum at 21%.
The report also mentioned that private assets are viewed as the initial beneficiaries of tokenization, with most surveyed institutions anticipating that digital assets will gain mainstream acceptance within the next decade, although they remain cautious regarding the pace of adoption.
Just over half (52%) of respondents believe that by 2030, 10% to 24% of all investments will be conducted through digital or tokenized instruments, while only 1% expect most investments to transition entirely onchain.
This survey, conducted in partnership with Oxford Economics, included over 300 institutional investors, exploring their usage of digital assets, AI, and blockchain, as well as their future capital allocation.
State Street Corporation provides institutional financial services. According to the company, as of June 30, it supervised around $49 trillion in assets under custody or administration and $5.1 trillion under management across more than 100 markets.
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Digital transformation strategies: AI and blockchain
The study also indicates that distributed ledger technology (DLT) and artificial intelligence are essential to institutions’ digital transformation strategies.
Nearly all surveyed companies have implemented or are planning to implement strategies utilizing advanced and emerging technologies to automate processes, eliminate friction points, and enhance interoperability across business operations.
The report reveals that 29% of respondents consider blockchain to be a key component of their transformation plans. Many are also broadening blockchain applications beyond investment operations, utilizing it for cash flow management (61%), business data processes (60%), and legal or compliance functions (31%).
Institutions increasingly view blockchain and generative AI as complementary foundations for a wider digital transformation strategy.
Approximately half (45%) concur that recent advancements in generative AI will expedite the development of digital assets, as GenAI tools can create smart contracts, blockchains, and tokens more efficiently, securely, and cost-effectively.
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DeFi meets TradFi in transition
Despite growing confidence in digital assets, many companies are skeptical about whether blockchain-based systems will completely replace traditional trading and custody infrastructures.
Nearly half of respondents (43%) foresee hybrid decentralized and traditional finance investment operations becoming mainstream within the next five years, a significant increase from 11% just a year ago.
However, 14% of respondents indicated that they do not believe digital investment systems will ever fully replace traditional trading and custody methods, a notable rise from 3% in 2024.
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