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Tokenized Lending and Defi Institutionalization: Global Trends and Regulatory Tensions

Tokenized Lending and Defi Institutionalization: Global Trends and Regulatory Tensions
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Author(s): Bismark Addai (University Canada West, Canada), Adjei Gyamfi Gyimah (The Eastern and Southern African Trade and Development Bank, Nairobi, Kenya), Peilin Li (University Canada West, Canada)and Shahinaz Hanem R. Abdellatif (University Canada West, Canada)
Copyright: 2026
Pages: 32
Source title: The Impact of Blockchain in Token Economies
Source Author(s)/Editor(s): Guneet Kaur (University of Stirling, UK), Lorena Nessi (Fairleigh Dickinson University, UK)and Pooja Lekhi (University Canada West, Canada)
DOI: 10.4018/979-8-3373-3371-7.ch004

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Abstract

Tokenized lending is a major application of decentralized finance (DeFi) that has evolved as an innovative platform for credit intermediation through blockchain-based smart contracts. Early token lending platforms such as MakerDAO (now Sky), Compound, and Aave were permissionless, built for decentralized retail lending. More recently, however, there has been an increase in the interest of tokenized lending by institutional investors and regulated entities looking for compliant, risk-managed solutions. This chapter explores the institutionalization of tokenized lending, including an overview and conceptual analysis of the growth, technology, and potential role in the financial system. Additionally, the chapter highlights the fragmented landscape of regulation on tokenized lending and more nuanced strategies taken by the United States, Canada, the European Union, and Singapore. Although this mixed picture provides the avenue for innovation, it also evinces risks of fragmentation and regulatory arbitrage. The chapter contextualizes the development, potential, and risks of the institutionalization of tokenized lending relative to the global and selected credit markets.

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