As traditional finance (TradFi) eyes the crypto lending market, community members explained how decentralized finance (DeFi) lending protocols can compete with what mainstream financial institutions bring to the table.
On Tuesday, JPMorgan Chase, the largest bank in the United States, was reported to be exploring lending directly against crypto assets like Bitcoin (BTC) and Ether (ETH), according to the Financial Times. An unidentified source said the bank may launch the offering as soon as 2026, though the plan is still in its early stages.
With a major TradFi player eyeing the crypto lending market, the pressure on DeFi lenders to remain competitive is increasing. However, 1inch co-founder Sergej Kunz told Cointelegraph that crypto lending in DeFi has undeniable advantages over traditional finance institutions.
Kunz highlighted user experience, wider collateral support and market-driven fee optimization as some of DeFi’s advantages over TradFi.
DeFi supports more collateral options and better fees
“DeFi lending platforms provide a simpler and more straightforward user experience,” Kunz told Cointelegraph. “Unlike TradFi counterparts, they support a wider range of collateral options, and their liquidation processes typically happen later than those in TradFi.”
He added that TradFi services usually charge higher fees, while DeFi platforms may benefit from market-driven fee optimization.
Gadi Chait, head of investments at Xapo Bank, agreed that DeFi and TradFi will likely serve different audiences, though interest rates may become a point of competition.
Chait told Cointelegraph that while TradFi giants may offer crypto-collateralized loans with lower rates, he doesn’t expect the rates to differ dramatically.
“It’s important to remember that DeFi typically has lower fees, which helps offset any rate differences,” Chait told Cointelegraph, adding that DeFi and TradFi typically serve different markets.
Chait also said that while JPMorgan’s account base is significant, it only represents a limited portion of the total addressable market:
“The crypto lending space is vast, and there’s room for multiple players with different strengths.”
Permissionless access remains DeFi’s strength
While TradFi’s crypto lending entry looms, permissionless access remains DeFi’s defining advantage, according to Abdul Rafay Gadit, the co-founder and chief financial officer of the social crypto investment platform Zignaly.
“While major TradFi institutions may currently offer lower lending rates, they do so within tightly controlled frameworks,” Gadit told Cointelegraph, pointing to custodial risks, stringent Know Your Customer requirements and geographical restrictions.
In contrast, DeFi’s design allows anyone with an internet connection and a wallet to participate, without any paperwork or centralized approval.
Gadit said DeFi should not attempt to compete on interest rates alone but should lean on what makes it unique. This includes composability, censorship resistance and frictionless global access.
George Mandres, senior trader at institutional digital-asset platform XBTO, said specialization is important.
Mandres told Cointelegraph that traditional lenders would likely dominate regulated lending markets for high-cap assets like BTC, ETH and stablecoins.
However, the trader said DeFi’s edge lies in its ability to offer access to long-tail assets and use cases that big institutions are unlikely to support:
“Ultimately, DeFi may need to evolve into two tracks. One for retail, one for institutions.”
Related: Bitcoin-backed loans ‘obvious’ next step — Xapo Bank CEO
JPMorgan entry “net positive” for crypto
Michael Carbonara, co-founder and CEO of Ibanera, a platform designed to bridge traditional finance and Web3 infrastructure, told Cointelegraph that JPMorgan’s potential entry into crypto lending could only be a “net positive” for the crypto space.
Carbonara said institutional participation tends to bring better liquidity, infrastructure and legitimacy to emerging markets. These may now be extended to the digital asset space.
“It acts as a validation of the broader digital asset space,” Carbonara said, emphasizing that the move signals crypto’s transition into a more mature financial sector.
He said these developments signal that traditional finance players are no longer passive observers but are active participants in the Web3 economy.
“While it may raise regulatory and competitive pressure for native crypto players, the increased legitimacy and network effect brought by such entrants tend to benefit the ecosystem as a whole,” Carbonara added.
While JPMorgan eyeing crypto lending may be an interesting development, Tom Spiller, a legal crypto expert at Rosenblatt Law, told Cointelegraph it’s “not significant.”
Spiller said that JPMorgan is only “toying with a business line that already has years worth of history.” He also said that the potential product line coming to fruition next year means they are still prone to herding — doing it only because others are doing it — which brought on the subprime crisis.
“They are too slow to adapt to the changing times,” Spiller told Cointelegraph.
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