Financial technology companies will migrate to decentralized finance lending protocols within the next three years, according to Merline Egalite, co-founder of Morpho. Cointelegraph reports that Egalite made this prediction during an exclusive interview at EthCC 2025, where he outlined why traditional fintech firms are beginning to integrate DeFi solutions.

Morpho operates as the second-largest decentralized lending protocol with over $5.5 billion in total value locked across 20 blockchains. The protocol trails only AAVE, which commands $31 billion in TVL according to DefiLlama data. DeFi lending protocols enable users to lend and borrow cryptocurrency through smart contracts rather than traditional financial intermediaries.

Egalite explained that fintech companies recognize DeFi integration as a strategic necessity. Companies that fail to adopt these protocols risk falling behind competitors who can offer superior user experiences and financial products. DeFi lending provides higher interest rates compared to traditional finance while reducing dependency on centralized banking infrastructure.

The migration stems from several competitive advantages that DeFi protocols offer over traditional banking systems. Fintech firms using conventional banking rails face risks including license revocation and API access termination from large financial institutions. DeFi protocols eliminate these intermediary dependencies through permissionless blockchain infrastructure.

CoinDesk analysis shows that DeFi lending has reached a cumulative all-time high of $66.7 billion in total value locked during 2025. Major stablecoin vaults expanded from approximately $4 billion to $15 billion in supply-side deposits over the past 12 months. This growth occurred despite yield compression across major lending platforms, demonstrating institutional comfort with DeFi as legitimate financial infrastructure.

The emergence of curator-managed vaults represents a new asset management model within DeFi. Firms like Gauntlet now directly manage nearly $750 million in TVL across multiple protocols, earning performance fees ranging from 0 to 15 percent. We previously covered how institutional capital drives DeFi adoption, as traditional investors seek regulated pathways into decentralized finance markets.

The shift toward DeFi lending protocols will reshape the broader financial services landscape beyond fintech companies alone. Traditional banks and investment firms face pressure to integrate blockchain-based lending solutions or risk losing market share to more agile competitors. This transformation reflects a larger trend where financial institutions adopt DeFi infrastructure while maintaining familiar user interfaces.

DL News reports that 2025 will mark the year when fintech applications bring DeFi to mainstream users through the "DeFi mullet" approach. This strategy abstracts away technical complexity while providing access to superior financial products. Coinbase has already implemented this model by integrating Morpho's lending capabilities directly into its consumer interface, allowing users to borrow against Bitcoin holdings.

The regulatory environment may accelerate institutional adoption as unclear crypto regulations previously deterred many financial institutions from experimenting with DeFi protocols. With clearer guidelines emerging, particularly under the current administration, traditional finance companies can explore DeFi lending without regulatory uncertainty. This regulatory clarity will likely prompt more institutions to integrate decentralized lending protocols and offer competitive yields to their customer base.