📄 Abstract
Decentralized Finance (DeFi) presents a fundamental paradox for institutional theory: protocols designed to eliminate traditional intermediaries must increasingly adopt institutionalized practices to gain the legitimacy required for mainstream adoption. Drawing on Suchman's (1995) legitimacy typology, DiMaggio and Powell's (1983) institutional isomorphism framework, and Khanna and Palepu's (2010) institutional voids theory, this conceptual paper develops a multi-level framework—the Legitimacy Paradox Framework (LPF)—to explain how DeFi protocols navigate the tension between decentralized identity and institutional conformity. We advance nine research propositions organized across three theoretical dimensions: (1) the paradoxical relationship between decentralization ideology and legitimacy acquisition; (2) the isomorphic pressures—coercive, mimetic, and normative—driving convergence with traditional finance; and (3) the institutional void-filling mechanisms that DeFi creates and simultaneously struggles to legitimate. The paper introduces the concept of legitimacy bricolage—the creative recombination of institutional and technological legitimacy elements—as a resolution pathway. With DeFi's total value locked surpassing $160 billion and institutional adoption accelerating, this framework provides a timely theoretical lens for understanding how nascent financial ecosystems construct legitimacy while preserving their foundational identity. Implications for organizational theory, financial regulation, and DeFi practitioners are discussed.
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📚 How to Cite:
T. Swathi, Anutya Kondra , THE LEGITIMACY PARADOX IN DECENTRALIZED FINANCE: AN INSTITUTIONAL THEORY FRAMEWORK FOR UNDERSTANDING DeFi's PATH TO MAINSTREAM ADOPTION , Volume 14 , Issue 8, August 2026, EPRA International Journal of Economic and Business Review(JEBR) , Pages: 5 - 12 , DOI: https://doi.org/10.36713/epra28856