Bridging TradFi and DeFi: The Rise of Tokenization in 2025

Well, not even fully halfway into 2025, and the tokenization market has hit $24 billion US dollars.

The industry is still expected to blossom to trillions of dollars, and this is because major institutions like BlackRock are increasingly integrating with Defi.

We're seeing all kinds of DI activity from stablecoin.

The digital asset payment methods and rewards.

Well, joining me this morning to break all of this down is Troon Chitwa, co-founder and CEO of Gauntlet.

Well, Tarroon, thank you so much for joining me.

Thanks for having me.

Well, we know there's been a lot of focus on Defi in 2025.

So first and foremost, tell us about this bridge between Tradie and D5.

Yeah, so I think one interesting thing people have realized is the first wave of tokenization maybe in 2015, 2016 was people taking off chain assets, maybe it's real estate, maybe it's stocks, etc. and putting it on chain.

But the problem was at that time DeFi wasn't sufficiently liquid and well understood enough that leverage was expensive.

People didn't understand how to borrow against positions well, and so there was a lot of friction that felt like, hey, maybe I get most of that in traditional finance.

What you're seeing right now is over the last 5 years, DFI has matured to have hundreds of billions of dollars of liquidity.

People understand how to use the systems really well and they understand the security properties of the system.

Um, I think like when I kind of went into crypto full time in 2018 and the word D5, you know, didn't exist yet, there was sort of this idea that hey, people would build all these financial services like investment banking like services for on chain assets, and that happened.

It just took a little longer than people expected.

I think people thought after 2017 it would be done in 2 years, took more like 5 or 6 years.

But now with that level of maturity and that level of understanding of these products, I think people in the traditional world are much more comfortable utilizing them and they're also seeing the benefits of 24/7 markets, 24/7 liquidity, global access to capital and users.

Yeah, and Tarun, you're here at the New York Stock Exchange and you're an early adopter, but when we think back to when the Bitcoin ETF was first launched here, we have come a long way since then and since 2015, a lot has changed in the landscape.

So what are we seeing when it comes to the launch of products powered by Defi?

Yeah, so I think one thing we're seeing a lot of right now is people who are trying to increase their usage of their financial product to retail investors to a larger group of investors going to crypto means.

So you know, you already see this in the ETF market where a lot of private credit funds and private equity funds are trying to launch ETFs, and a lot of them are realizing actually it's easier to go direct to crypto users who are already retail users who would love to have that exposure.

The second thing, which I think is actually very relevant to this show, is you're seeing a lot of FinTech applications realizing, hey, we actually can do a lot more than what we could have before where we were just basically a wrapper around a bank, right?

Like as we saw with the SVB events, a lot of fintech companies are really just a UX, but behind the scenes there's still a bank like that manages everything with stablecoins, a lot of fintechs don't have to hold that risk.

And they can also earn yield for users anywhere in the world.

They're not really restricted to their local geography, and this kind of global access to yields and this global access to supplied capital to lend out, I think inevitably will be the greatest reason most of definablepins work.

At the end of the day, it creates lending markets where you couldn't have had them before.

Yeah, and that brings me to my next question, Taun.

So given that the tokenization market has hit $24 billion and there's some lofty sums for projections in not just the next 5 years but also upcoming decades.

So where do you think that growth is going to come from?

Yeah, so I think right now we kind of have this barbell of tokenized assets.

We have stablecoins which are extremely liquid demand deposit like assets.

There's no sort of duration risk.

And then you have these tokenized funds which You know, have a lot of embedded risks, right?

They only pay out at certain times.

You can't withdraw.

Whatever.

But there's a whole spectrum in between, and there's a whole spectrum of financial products in between.

And if you think about how ETFs grew from this kind of niche industry into the thing that dominates a lot of market flows today, what happened was ETFs kind of fit the in between liquidity profile of a pure single name stock and a fund, like a mutual fund, and I kind of think the way tokenization develops over time is it fills out these kind of different liquidity profiles where people are willing to lock up their capital but for a certain amount of time for a higher yield.

And as you start getting more of these risk premium on chain, I think you are able to build better and better yield products, and you can offer them more safely to the average retail investor.

Yeah, and speaking of which, at Gauntlet, give us an idea of who you're working with and what you're working on.

Yeah, so we've been around since 2018 and basically we started by doing a lot of like in-depth research and analysis and advisory on how you should build DI protocols.

So how do you choose the math.

A kind of for what you want, how do you think about sort of What the risk parameters you have in your system are and how you can adjust them to make it better for your users and then over time what we found is people actually want these composite financial products where people are managing risk for them on their behalf and what you're seeing is this kind of explosion in what are called vaults and vaults are sort of DI protocols where users can deposit their assets.

It gets allocated to a bunch of different on chain yield opportunities that you can think of as lending perpetuals, tokenization, and Basically you can think of this as like almost like being able to make a fund on demand, except it's not really a fund.

The users can join and leave whenever.

So we kind of taken our almost a decade of writing a lot of the deep math research in this space and now we're applying it to making sure that the average user can go find yield very easily on chain.

Yeah, and for retail investors who might be watching this right now and they're thinking, what exactly is vault creation, can you tell us a little bit about the strategies?

Yeah, for sure.

So Um, if you think about, you know, maybe you go to a FinTech app, maybe you go into Robinhood, maybe you go into Revolut and you might see something that's like, hey, earn 5% on your cash that's in the app.

Where's that cash going?

Where's that cash the yield coming from?

It's usually some combination of treasury yield.

It's usually if you maybe they offer a higher yield product, they might buy bonds, maybe it's stocks, but on chain yields are actually really there are a lot of protocols where people pull together assets that can be lent out permissionlessly.

So it's almost like going to a margin desk at a bank, except your counterparty is a smart contract.

And so the real question is how much do you allocate to these different pools, like how much do you think this particular set of loans is risky versus another and you can think of this as effectively doing commercial lending and so these yields, you know, I think over time in the beginning of DeFI they were very unstable.

People didn't understand how they worked, but now they've matured so much that you're actually able to get pretty reasonable spreads above treasuries like Sofer +3, So + 4 that are actually Appealing to the average investor and stablecoins are large enough that you can exit and enter these positions easily.

Well, we will have to leave it there, but thank you so much for joining me today and thank you so much for simplifying all of this.

Thanks for having me.