TradFi and Decentralized Finance: The Inevitable Path from Opposition to Integration

The importance of DeFi to the core business of TradFi has become prominent, with TradFi shifting from skepticism to acceptance, believing it will bring systematic improvements.

**Written by: **Paradigm

Compiled by: Plain Language Blockchain

The current financial system is hindered by inefficiencies, which not only stifles economic growth but also consumes a significant amount of 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 out redundancy and unlock true value. DeFi is not just an alternative; it is the future that TradFi is about to embrace. And all of this begins with policies that support its flourishing.

More than two-thirds of TradFi companies are focusing on Decentralized Finance.

The technology infrastructure and systems currently used in TradFi are labor-intensive and require a lot of 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. Cryptocurrencies are increasingly being integrated into their strategies:

1. TradFi companies view DeFi as a solution to operational efficiency issues.

2. Nearly nine out of ten companies are actively investing in or researching how to leverage the benefits of public blockchains.

3. TradFi is embracing its own disruption, as it realizes how much profit can be gained from shifting to DeFi-driven infrastructure.

Decentralized Finance is inevitably crucial for most core businesses.

TradFi clearly believes that Decentralized Finance will ultimately be crucial to its core products and business lines. All of this stems from TradFi’s belief that DeFi will bring real improvements to the financial system.

People have come a long way from the era of skepticism that believed Decentralized Finance would never have any connections outside of cryptocurrency. Now, TradFi sees DeFi not only as inevitable but also as an opportunity.

TradFi denies that private blockchains hold the same value as public permissionless blockchains

Earlier last year, research showed that central banks were moving away from proprietary blockchains and increasingly turning to open-source software and public networks. Now, most traditional financial communities believe that public permissionless blockchains are essential to take advantage of benefits such as smart contracts and tokenization.

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

TradFi and Stablecoins, Tokenized Assets, and Decentralized Exchanges (DEX)

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

These three major “pillars” are necessary conditions for accelerating market development, as having settlement assets now represents a universal way of other assets, as well as scalable protocols that can be composably used to execute financial transactions on-chain.

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

The biggest obstacle to the release of true economic efficiency in DeFi in the short term is the regulatory environment.

Policymakers have a once-in-a-lifetime opportunity to accelerate development. TradFi understands that DeFi is inevitable and that it represents an improvement over most current systems. At this point, they share the fundamental view of many cryptocurrency practitioners, who have been working to protect the open systems of DeFi from being stifled before this innovation has fully matured. The main barrier to TradFi 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 engaging with DeFi.

The period of waiting patiently has ended. It has been four years since the summer of Decentralized Finance, during which the global and cryptocurrency markets have experienced a series of events that demonstrate the antifragility of DeFi. It is now time for regulators to begin opening the gates that separate TradFi from DeFi, allowing traditional financial companies to embrace the possibilities of this innovative technology.