Traditional Finance and DeFi: The Inevitable Path from Opposition to Integration

Author: Paradigm

Compilation: Vernacular Blockchain

The current financial system is hindered by inefficiency, which not only suppresses economic growth, but also consumes a lot of resources. The risk is high, and the cost of not taking action is higher. Many people see decentralized finance (DeFi) as a transformative solution—a way to cut redundancy and unlock real value. DeFi is not just an alternative, but a future that traditional finance is about to embrace. And it all starts with policies that support its thriving development.

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 look for ways to use technology to reduce costs, improve risk management and simplify operational efficiency. Cryptocurrencies are increasingly integrated into their strategies:

1. Traditional financial companies regard DeFi as a solution to operational efficiency problems.

2. Almost nine out of every 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 knows how much it can be gained from a DeFi-powered infrastructure.

DeFi is ultimately crucial to most core businesses and is inevitable

Traditional Finance clearly believes that DeFi will ultimately be crucial to its core products and business lines. All this stems from traditional finance’s belief that DeFi will bring actual improvements to the financial system.

People have come a long way from an era when skeptics believe that DeFi will never be associated outside of cryptocurrencies. Now, traditional finance believes that DeFi is not only inevitable, but also an opportunity.

Traditional finance denies private blockchains have equal 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 traditional financial communities believe that public permissionless blockchain is crucial to leveraging advantages such as smart contracts and tokenization.

Protecting such systems is crucial and requires strong incentives to develop and maintain open public infrastructure.

Traditional finance for stablecoins, tokenized assets and decentralized

trading platforms (DEX)

Traditional finance has the greatest interest in stablecoins, tokenized assets and decentralized trading platforms (DEXs), which is related to the increase in on-chain trading volume in these areas.

These three "pillars" are necessary to accelerate market development, because now owning settlement assets, a common way to represent other assets, and a combined scalable protocol to execute financial transactions on-chain.

In the coming years, these charts are expected to continue to move upward and to the right.

The biggest resistance to stopping DeFi in the short term is the

regulatory environment

Policymakers have a once-in-a-lifetime opportunity to accelerate, traditional finance understands DeFi is inevitable and it represents improvements to most current systems. At this point, they are consistent with the basic views of many cryptocurrency practitioners, who have been working to protect DeFi’s open systems so that this innovation is stifled before it is fully mature. The main obstacle to traditional finance embracing cryptocurrencies is not the need for stronger infrastructure or lack of practicality, but the fact that many banks and market regulators are blocking traditional financial companies, banks, trading platforms and funds from accessing DeFi.

The period of patience for waiting and watching is over. Now four years have passed since the DeFi summer, the global and cryptocurrency markets have experienced a series of events that demonstrate DeFi’s anti-fragility. It is time for regulators to start opening the floodgates that separate traditional finance from DeFi, allowing traditional financial companies to embrace the possibility of this innovative technology.