By: Paradigm Policy Team

Compiled by: TechFlow

We surveyed 300 traditional finance (TradFi) practitioners across multiple institutions, positions, and regions. The results were almost unanimous: the current financial system is hampering economic growth and wasting resources due to inefficient operations. The problem is urgent, and the cost of action is higher. Many people see decentralized finance (DeFi) as a solution - a way to cut redundancy and unlock real value. Our survey report clearly states: DeFi is not only an alternative option, it is the future development direction of traditional finance, and all this needs to start with policies that support its development.

The full report can be accessed here.

Finding 1: More than two-thirds of traditional financial companies are paying attention to DeFi

The existing technology infrastructure and systems used by traditional finance are labor-intensive and require a lot of manual operations. Therefore, many TradFi companies have begun to explore cutting-edge technologies and actively seek ways to reduce costs, improve risk management and increase operational efficiency through technology. Crypto technology is increasingly being integrated into their strategies:

  • TradFi sees DeFi as the key to solving operational efficiency issues.

  • Close to 90% of companies are investing in or researching how to take advantage of public blockchains.

Traditional finance is actively embracing self-disruption because they are well aware of the huge benefits that will come from shifting to DeFi-driven infrastructure.

Finding 2: DeFi will become an important part of traditional financial core business

The data clearly shows that TradFi believes that DeFi will eventually play a vital role in its core products and business lines. This view is based on the belief that DeFi can improve the financial system.

From initial skepticism to today's acceptance, TradFi no longer believes that DeFi is limited to the crypto field, but sees it as an inevitable trend and huge opportunity.

Finding 3: Traditional finance refuses to view private blockchains as alternatives to public permissionless blockchains

Last year, we published research showing that central banks are moving away from proprietary blockchains in favor of open source software and public networks. This survey further demonstrates that the majority of the TradFi community believes that public, permissionless blockchains are essential for the adoption of technologies such as smart contracts and asset tokenization.

It is therefore critical to protect these systems and provide strong incentives for developing and maintaining open public infrastructure.

Finding 4: Stablecoins, asset tokenization, and decentralized exchanges (DEXs) are TradFi’s focus

Stablecoins, asset tokenization, and decentralized exchanges are currently the areas of greatest interest to TradFi, which is consistent with the growth trend of on-chain transaction volumes in these areas.

These three “pillars” are necessary to accelerate market development because they provide: (1) settlement assets; (2) a universal way to represent assets; and (3) composable protocols for on-chain financial transactions.

In the coming years, we expect growth in these areas to continue to rise.

Finding 5: The regulatory environment is the biggest obstacle to DeFi’s economic efficiency in the short term, and policymakers face a generational opportunity to accelerate change.

Traditional finance (TradFi) has recognized that the development of decentralized finance (DeFi) is inevitable and a significant improvement over many existing financial systems. On this point, traditional finance and the crypto industry are largely in agreement - the latter has been working hard to protect the open system of DeFi to ensure that this innovation is not stifled before it fully matures. However, the main obstacle that prevents traditional finance from fully embracing crypto technology is not the lack of infrastructure or lack of practicality, but the restrictions of many banks and market regulators. These regulators prevent traditional financial companies, banks, exchanges, and funds from entering the DeFi field, thereby slowing down the pace of this integration.

Today, the era of cautious waiting is over. Four years after the "Summer of DeFi", we have experienced a series of global market events and crypto market turmoil, which have proved the anti-fragility of DeFi. Now is the time for regulators to open the gates between traditional finance and DeFi, allowing traditional financial institutions to embrace the possibilities of this revolutionary technology.