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We are all used to hearing about crypto projects that appeal to traditional finance and massive investment firms that demand crypto. funds exchanged. But it’s easy to forget how hostile and combative the DeFi-TradFi relationship once was.
Of course, these two different financial systems will never see eye to eye. But to understand that they cannot eliminate each other, the hostility has decreased, and the lines of communication have opened.
TradFi understands the potential of blockchain technology and the operational efficiency of decentralized finance and the ability to build innovative financial products and services. Likewise, crypto has come to realize that TradFi’s infrastructure, vast resources, and customer base hold the key to expanding its ecosystem.
Despite finding common ground, technological, ideological and operational gaps remain, creating a rift that will ultimately limit fruitful collaborations if not addressed. Do not forget that Bitcoin (BTC) is just celebrating its “sweet sixteen” this year, and crypto as a whole still has a lot of momentum to gain. Moreover, mainstream banks are so entrenched in society through centuries of growth that they are not going away anytime soon. Therefore, the lack of a mechanism for cooperation and meaningful coexistence, in the end, damage the economic order of the world.
Since the crypto movement has effectively entered the financial order, the onus is mainly on him to accommodate TradFi, which operates on the same principles it has had for centuries. It’s not that TradFi can’t change; it’s just that as the economic guardian, the sector moves at a much slower pace. Expecting a change on that scale so soon is akin to a four-year-old child demanding to graduate college.
As things stand today, common instruments like debit cards are still disconnected from the DeFi protocols and tokenized real-world asset platforms that spark TradFi’s interest. And buying crypto off a centralized exchange and then participating in a DeFi protocol with a separate wallet contradicts the narrative of crypto “efficiency,” especially when banks allow customers to log into a single app and buy, sell, or trade shares with a few touches.
It highlights the desperate need for interoperability infrastructure that can easily link TradFi systems, including different currencies and permissioned chains, with blockchain-based applications and protocols. Addressing this barrier will allow institutions to expand their engagement with DeFi and crypto while providing new crypto users with a painless onboarding experience.
DeFi protocols have, to some extent, increased their compliance with KYC and AML processes, but more is needed to get banks on board. Intensive auditing and enhanced security measures powered by automated monitoring tools, for example, will go a long way to bolstering TradFi’s confidence in DeFi.
While maximizing the broad collaborations between TradFi and DeFi requires the former to do more heavily, the latter must be willing to give their support to strengthen common infrastructure solutions with better risk management models and expertise in custody and provisioning of liquidity.
Infrastructure that takes into account the needs of both ecosystems is the only sure way to keep their dialogue going. And some projects take the initiative to make this mixture more perfect.
For example, Vixichain is a young project with great ambitions to encourage greater involvement of TradFi in DeFi by inviting financial institutions to serve as validators on its complete Layer-1 blockchain. Vixichain creates a secure environment for financial institutions to interact with DeFi protocols on public blockchains through a stablecoin that uses NFT technology to ensure traceability and authenticity. Its stablecoin is backed by fiat reserves and backed by its native VIXC token to power real-world utilities in an integrated and comprehensive environment.
As Bitcoin surpasses $100,000 for the first timeThere is great hope that together, TradFi and DeFi can forge not only a path for constructive cooperation, but an integrated system that addresses the financial needs of billions of people. To make this happen, it requires the innovative potential of DeFi and the resources and infrastructure of TradFi to lay the foundations for a new, more efficient financial era.
