The merging of crypto and TradFi is inevitable, with the latter potentially mitigating the volatility permeating the digital asset industry.
Despite the current struggle in the global economy, the gap between traditional finance (TradFi) and crypto seems to be closing with each passing day.
For example, earlier this month, Vienna-based fintech unicorn Bitpanda announced that it was adding commodities to its list of investment options, thus allowing investors to rake in profits from short-term price fluctuations related to traditional instruments such as oil, natural gas and wheat.
In a recent interview with Cointelegraph, the company’s CEO, Eric Demuth, noted that the bear market had had no major impact on investor demand. He claims that more people are now looking for solutions that can bring the world of TradFi and decentralized finance (DeFi) together.
Not only that, there are lessons to be learned about what works out best for consumers operating within both realms. For example, while TradFi platforms can improve their accessibility and transparency mechanisms, DeFi ecosystems can learn a lot about risk mitigation from traditional finance entities.
Furthermore, with statistical data showing that more than 300 million individuals now own some cryptocurrency, more and more players from the two worlds are beginning to arrive at a middle ground. For example, many major institutions worldwide have been adopting crypto at breakneck speeds, with a recent research study showing that 76% of all major financial institutions will most likely be making use of digital assets within the next 36 months.
Is the confluence of TradFi and crypto imminent?
According to Victor Tran, co-founder and CEO of Kyber Network — a liquidity hub powering the Ethereum-based decentralized exchange (DEX) KyberSwap — it is only logical that traditional finance players are turning toward crypto since they want to increase their market share within an exponentially growing industry — one that has been witnessing more and more peer-to-peer (P2P) and commercial transactions by the day.
By the same token, he highlighted that DeFi, too, is experimenting with more use cases, those that can maximize market participation as well as help boost transaction volumes, adding:
“It’s all about giving users benefits. We believe that TradFi and DeFi can co-exist synergistically and provide users unparalleled access, control and choice. Greater institutional participation, security measures and use cases will create choice, excitement and confidence for users. Sustainable overall liquidity in the market with institutional participation will also help with the challenges of volatile liquidity during downturns.”
Furthermore, Tran believes that privacy-focused noncustodial solutions will become mainstream soon, with multichain, secure DEXs such as KyberSwap laying the bedrock for such a transparency-oriented economy. “Addressing users’ security wants, and pain points are always first priority,” he concluded.
Jazear Brooks, CEO and founder of omni-chain DEX SifChain, shared a somewhat similar opinion, telling Cointelegraph that crypto and TradFi markets have been circling each other for the past few years, with many individuals from the latter having already joined the digital currency bandwagon after realizing that the best crypto projects can massively out-earn almost all of their conventional finance counterparts. He added:
“The chaos of crypto markets due to the collective inexperience of the industry reflects a world of pitfalls that have already been mastered by TradFi. TradFi is the elder statesman in the room representing timeless virtues of profitable investing in an unpredictable world.”
Brooks closed out by saying that the protective mechanisms of corporate governance can be combined with the populist, fast-paced, communal benefits of decentralized autonomous organizations (DAOs) to create a holistic finance system, one that is fair, transparent and inclusive in nature. “We’ll see market efficiencies increased as trad-fi systems are reimagined to import crypto values, and those market efficiencies can then generate additional societal value,” he opined.
Crypto and TradFi stand to benefit each other
Nicola Onassis, co-founder and CEO of regulated investment platform Rebuschain, told Cointelegraph that the integration of crypto into TradFi — and vice versa — can be seen as the natural evolution for both environments, especially as the two domains stand to help each other. In his view, DeFi has created new investment opportunities that don’t exist within traditional markets, allowing more people to accrue wealth for themselves, adding:
“The crypto sector can sometimes be hard to make inroads into, especially for those sitting on the fence. That’s why it is vital for platforms to be created that allow users to participate in these novel investment forms with ease. The goal on both sides is to generate more revenue and investments by working together, they have a chance to increase that outcome exponentially since there is no conflict.”
He further highlighted that, as things stand, investors unfamiliar with the crypto market have to deal with platforms that can often be difficult to use. However, everyone can benefit immensely by bringing players from the traditional realm and fostering new ecosystems that provide a more user-friendly experience. “Having a platform that takes out all of the operational complexities and minimizes risks will increase confidence and adoption,” Onassis stated.
Lastly, he thinks that it is important that regulators allow crypto and TradFi to come together and create viable solutions for their customers instead of complicating things by introducing unnecessary regulations. “Regulators giving fair, specific and clear rules can push the crypto sector forward. The crypto industry should work with regulators to achieve these results,” he said.
Could this reduce market volatility?
Maximiliano Stochyk, head of marketing for ChainPort.io — a permissionless blockchain bridge for crypto tokens — told Cointelegraph that the confluence of crypto and traditional finance will not only allow non-tech savvy investors to make their way into the crypto sector but also introduce a level of stability previously unwitnessed in the digital asset space.
He noted the already growing list of mainstream financial institutions that are offering their clients the option of buying crypto using their fiat assets, among other similar options. “The fintech’s that offer debit cards are also acting as major gateways to mass adoption,” Stochyk stated.
Stochyk said that for mass crypto adoption to happen in the near-to-mid-term, the two spaces need to co-exist with one another. And much like Onassis, he also believes that regulation is right around the corner, with companies now needing to act accordingly to help introduce more confidence within this space:
“Building products that are ready to comply with regulations is the way to go. The merging of crypto and TradFi will bring a lot of new institutional investors and also a lot of retail investors who don’t want to invest in crypto. When it comes to centralized and decentralized, you can’t live without the other, you will always need a centralized exchange to withdraw money to your bank for example. So, they all need to coexist.”
Therefore, as the world continues to gravitate toward an economic landscape that favors the ethos of decentralization/transparency, it will be interesting to see how players from the crypto and conventional finance ecosystems continue to synthesize their goals and create a new paradigm that allows users to enjoy the best of both worlds.