Citi Securities Services Evolution 2025

28 | Securities Services Evolution 2025 Viewpoint: DeFi and Institutional Convergence Much of the focus of this whitepaper has been on the evolution of the world’s “traditional” financial markets. But no report on digital transformation would be complete without the perspective of the growing constituency of investors and service providers in the “DeFi” space. Whilst their traditional counterparts consider how best to drive incremental improvements fromwithin a closely regulated, institutional ecosystem, those in the DeFi space are driven by a different vision where open, programmable and decentralized markets merge with today’s capital market infrastructures. The key question today is when and how these two visions can converge to drive new levels of efficiency and value. This transformation is happening quickly In 2025, regulatory developments in the US, in particular, have added significant momentum (and expectations) to an industry already evolving at great speed. Within the past year, executive orders have been issued which embraces public blockchain, crypto and stablecoins. Although DeFi is not being deregulated wholesale, this year has seen a range of nuanced adjustments through pending legislation, court outcomes, and shifts in enforcement philosophy that combine to support innovation and adoption. Legislators are debating frameworks (e.g. CLARITY Act) that balance innovation with oversight. At the SEC, formal rulemaking and public consultations are replacing litigation as key policy instruments. Court rulings have helped clarify the potential boundaries of regulatory authority, providing an indication of how DeFi platforms are likely to be treated under securities laws in the future. Through the efforts of the SEC Crypto Task Force and others, the path and framework that will support the digital transformation of the US capital markets is starting to take shape. “We are seeing the crypto ecosystem grow at unprecedented speed, with institutions like Citi entering the space and legal clarity emerging through the GENIUS Act and the CLARITY bill. But growth brings risk – AI-driven scams, North Korean hacks, ransomware. That’s why compliance teams, law enforcement, and regulators need the right tools and training. Crypto’s promise is cross-border value transfer at the speed of the internet, but the same technology lets bad actors move illicit funds just as fast. Meeting that challenge is key to realizing the full potential of DeFi.” Esteban Castaño, CEO, TRM Labs What is DeFi? Decentralized finance (DeFi) uses blockchain technology to recreate and improve traditional financial services, without reliance on traditional intermediaries like banks, brokers, and clearing houses. DeFi uses smart contracts (self- executing code on blockchains) to allow investors to exchange digital money, trade cryptocurrencies, and access financial products in a peer-to-peer manner. There are generally two types of DeFi – permissionless (open access for anyone with an internet connection and crypto wallet) and permissioned (controlled access where participants must be vetted – often limited to regulated financial institutions).