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Ethereum Co-Founder Vitalik Buterin recently created a ripple on crypto twitter writing that DeFi “feels like an ouroboros [a snake eating its own tail]: the value of crypto tokens is that you can use them to earn yield which is paid for by... people trading crypto tokens.”

He went on to note that “while defi may be great it's fundamentally capped and can't be _the_ thing that brings crypto to another 10-100x adoption burst.”

Vitalik isn’t wrong.

The ethos of decentralized finance (DeFi) is the belief that a blockchain-based financial system will free society from rent-seeking intermediaries and make financial services accessible to the globally unbanked.

And yet, it’s not hard to miss that much of what is considered “DeFi” today really just feels like a circular casino that facilitates speculation on tokens whose value is primarily derived from monetizing token speculation.

It is not sacrilegious to acknowledge this fact, nor is it to accept that this current version of DeFi is clearly not sustainable. There is only so much demand for circular token speculation and there isn’t an infinite amount of retail capital to burn.

DeFi in its current state is not the catalyst that will scale crypto adoption beyond current levels, but that doesn’t mean the creation of an on-chain token casino was all for nothing.

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DeFi, in its current form, has proven that an on-chain financial system can be created that provides all the core primitives that an open, globally accessible, and robust financial system would require: payments, swaps, lending, derivatives, insurance, and much more.

The infrastructure and protocols that underpin DeFi do indeed reduce counterparty risk and costs, while increasing transparency and accessibility — even if the initial product-market fit amounts to little more than token gambling.

So how can DeFi overcome its circular token gambling obsession and play its proper role in scaling crypto adoption?

Tokenized assets

At their most basic level, blockchains are the superior method of issuing, transferring, and tracking assets via the creation of digital tokens. Finance revolves around asset management, making DeFi the most tangible, obvious growth opportunity for crypto.

But, to grow, the DeFi economy needs access to more assets that can be represented as tokens. While cryptocurrencies have gotten DeFi to where it is today, evolving beyond the casino-stage means seeking out where most of the capital in the world resides. And the answer is blindingly obvious.

Tokenizing all the assets within the traditional financial system — bank deposits, commercial paper, treasuries, mutual funds, money market funds, stocks, futures, options, swaps, etcetera — would bring hundreds of trillions of dollars worth of capital on-chain.

One single firm, BlackRock, manages nearly five times more assets ($10.5 trillion) than the market capitalization of the entire crypto market ($2.2 trillion).

This is capital that can then be seamlessly plugged into existing on-chain finance protocols, in effect hotswapping token gambling with real-world financing. Far from just a pipedream, many of the world’s largest financial institutions are actively positioning themselves for a future where tokenization is the status quo.

In less than half a year, BlackRock’s tokenized fund on Ethereum, BUIDL, has exceeded $500 million AUM, bringing the total value of tokenized government securities on public blockchains to over $1.5 billion. While this amount is a small fraction of the value contained in the traditional system, the active participation of the world’s largest asset manager within a public blockchain ecosystem speaks volumes.

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Furthermore, stablecoins have proven that the demand for tokenized assets is overwhelmingly real. With over $150 billion of U.S. dollars tokenized on-chain , and monthly transfer volume of $1.4 trillion, stablecoin usage now rivals that of established payments networks such as Visa. While not often thought of as a tokenized asset, the only difference between Circle’s USDC and BlackRock’s BUIDL is who receives the yield.

Stablecoins highlight the core value of tokenization as they allow anyone to transfer dollars to anyone else in the world with just an internet connection. Transactions are settled in under a second and for less than a penny in fees. For anyone in a country with a hyper-inflating currency, who has tried to make a cross-border remittance payment, or simply wants to make a financial transaction on a weekend or holiday, the benefits of stablecoins are immediately obvious.

While DeFi’s token gambling won’t ever completely disappear, it is clear that the underlying infrastructure that currently enables DeFi will come to define the way the world economy operates. The path forward comes from embracing a simple fact: tokenized assets are a superior way to represent financial assets.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.