Author: Paradigm
Compiled by: Vernacular Blockchain
The current financial system is hampered by inefficiencies that stifle economic growth and consume vast resources. The stakes are high, and the cost of inaction is even higher. Many see decentralized finance (DeFi) as a transformative solution — a way to cut redundancy and unlock real value. DeFi is not just an alternative, it’s the future of traditional finance. And it all starts with policies that support its thriving.
More than two-thirds of traditional financial companies are paying attention to DeFi
The technical infrastructure and systems currently used by traditional finance are labor-intensive and require a lot of manual intervention. Therefore, traditional financial companies have been exploring cutting-edge technologies. They actively seek ways to use technology to reduce costs, improve risk management, and streamline operational efficiency. Cryptocurrencies are increasingly integrated into their strategies:
1. Traditional financial companies view DeFi as a solution to operational efficiency issues.
2. Almost nine out of ten companies are actively investing or researching how to leverage the benefits of public blockchains.
3. Traditional finance is embracing its own disruption because it understands how much it can gain from moving to a DeFi-driven infrastructure.
It’s inevitable that DeFi will eventually become critical to most core businesses
Traditional finance clearly believes that DeFi will ultimately be critical to its core products and business lines. This all stems from the fact that traditional finance believes that DeFi will bring practical improvements to the financial system.
We’ve come a long way from the days when skeptics believed DeFi would never be relevant outside of crypto. Now, traditional finance sees DeFi as not only inevitable, but an opportunity.
Traditional finance denies that private blockchains have the same value as public permissionless blockchains
Earlier last year, research showed that central banks were abandoning proprietary blockchains and increasingly turning to open source software and public networks. Now, most of the traditional financial community believes that public permissionless blockchains are essential to take advantage of benefits such as smart contracts and tokenization.
Protecting such systems is critical, and requires strong incentives to develop and maintain open public infrastructure.
Traditional finance vs. stablecoins, tokenized assets, and decentralized exchanges (DEX)
Traditional finance has the greatest interest in stablecoins, tokenized assets, and decentralized exchanges (DEX), which is related to the increase in on-chain transaction volumes in these areas.
These three “pillars” are necessary to accelerate market development because we now have a settlement asset, a common way to represent other assets, and a scalable protocol that can be used in combination to perform financial transactions on-chain.
In the coming years, expect these graphs to continue moving upward and to the right.
The biggest obstacle preventing DeFi from releasing real economic efficiency in the short term is the regulatory environment
Policymakers have a golden opportunity to accelerate development, and traditional finance understands that DeFi is inevitable and that it represents an improvement over most current systems. In this, they agree with the fundamental view of many cryptocurrency practitioners, who have been working to protect DeFi's open system to prevent this innovation from being stifled before it fully matures. The main obstacle for traditional finance to embrace cryptocurrencies is not the need for more powerful infrastructure or lack of practicality, but that many banks and market regulators are preventing traditional financial companies, banks, trading platforms, and funds from touching DeFi.
The patient period of waiting and watching is over. Now four years have passed since the DeFi summer, and the global and cryptocurrency markets have experienced a series of events that have demonstrated the anti-fragility of DeFi. It is time for regulators to start opening the gates that separate traditional finance from DeFi and allow traditional financial companies to embrace the possibilities of this innovative technology.
