Traditional Finance and DeFi: The Inevitable Path from Opposition to Integration
The importance of DeFi to the core business of traditional finance has become prominent, as traditional finance has shifted from skepticism to recognition, believing it will bring systematic improvements.Author: Paradigm
Compiler: Baihua Blockchain
The current financial system is hindered by inefficiencies, which not only stifles economic growth but also consumes vast resources. The risks are high, and the cost of inaction is even higher. Many view decentralized finance (DeFi) as a transformative solution—a way to cut redundancies and unlock real value. DeFi is not just an alternative; it is the future that traditional finance is about to embrace. And it all starts with policies that support its flourishing.
More than two-thirds of traditional financial companies are focusing on DeFi
The technological infrastructure and systems currently used by traditional finance are labor-intensive and require significant human intervention. As a result, traditional financial companies have been exploring cutting-edge technologies. They are actively seeking ways to leverage technology to reduce costs, improve risk management, and streamline operational efficiency. Cryptocurrency is increasingly becoming integrated into their strategies:
Traditional financial companies view DeFi as a solution to operational efficiency issues.
Nearly nine out of ten companies are actively investing in or researching how to leverage the benefits of public blockchains.
Traditional finance is embracing its own disruption, as it understands how much it can gain from transitioning to DeFi-driven infrastructure.
It is inevitable that DeFi will eventually be crucial to most core businesses
Traditional finance clearly recognizes that DeFi will ultimately be vital to its core products and business lines. This belief stems from the conviction that DeFi will bring tangible improvements to the financial system.
We have come a long way from the era of skeptics who believed that DeFi would never have relevance outside of cryptocurrency. Now, traditional finance sees DeFi not only as inevitable but also as an opportunity.
Traditional finance denies that private blockchains hold equal value to public permissionless blockchains
Earlier last year, research showed that central banks are moving away from proprietary blockchains and increasingly turning to open-source software and public networks. Now, most of the traditional finance community believes that public permissionless blockchains are essential for leveraging advantages such as smart contracts and tokenization.
Protecting such systems is crucial, and strong incentives are needed to develop and maintain open public infrastructure.
Traditional finance's interest in stablecoins, tokenized assets, and decentralized exchanges (DEX)
Traditional finance shows the greatest interest in stablecoins, tokenized assets, and decentralized exchanges (DEX), which correlates with the increase in on-chain trading volume in these areas.
These three "pillars" are necessary conditions for accelerating market development, as they now provide settlement assets, a universal way to represent other assets, and composable scalable protocols for executing financial transactions on-chain.
In the coming years, these charts are expected to continue trending upward and to the right.
The biggest short-term resistance to DeFi unleashing true economic efficiency is the regulatory environment
Policymakers have a once-in-a-lifetime opportunity to accelerate development, as traditional finance understands that DeFi is inevitable and represents an improvement over most current systems. At this point, they align with the fundamental views of many cryptocurrency practitioners, who have been striving to protect the open systems of DeFi from being stifled before this innovation fully matures. The main obstacle to traditional finance embracing cryptocurrency is not the need for stronger infrastructure or a lack of practicality, but rather that many banks and market regulators are preventing traditional financial companies, banks, trading platforms, and funds from accessing DeFi.
The period of patient observation has ended. Four years have passed since the summer of DeFi, during which the global and cryptocurrency markets have experienced a series of events showcasing the resilience of DeFi. It is now time for regulators to begin opening the floodgates that separate traditional finance from DeFi, allowing traditional financial companies to embrace this innovative technology.
