Blurring the line between crypto and TradFi could redefine global finance

Despite the current struggle in the global economy, the gap between traditional finance (TradFi) and crypto seems to be closing with each passing day.

Earlier this month, for example, Vienna-based fintech unicorn Bitpanda announced it was adding commodities to its list of investment options, allowing investors to profit from short-term price swings 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 not had a major impact on investor demand. He claims that more people are now looking for solutions that can bring the worlds of TradFi and decentralized finance (DeFi) together.

Not only that, there are lessons to be learned about what works best for consumers operating in both realms. For example, while TradFi platforms can improve their accessibility and transparency mechanisms, DeFi ecosystems can learn a lot about risk reduction from traditional financial 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 come to a middle ground. For example, many large institutions worldwide have adopted crypto at breakneck speeds, with a recent research study showing that 76% of all large financial institutions are most likely to adopt 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 that powers Ethereum-based decentralized exchange (DEX) KyberSwap – it’s only logical that traditional financial players are turning to crypto as they look to increase market share in an exponentially growing industry – one that has witnessed more and more peer-to-peer (P2P) and commercial transactions every day.

Similarly, he highlighted that DeFi is also experimenting with multiple use cases, those that can maximize market participation as well as help increase transaction volumes, adding:

“It’s about giving users benefits. We believe that TradFi and DeFi can co-exist synergistically and provide users with unparalleled access, control and choice. Greater institutional involvement, security measures and use cases will create options, excitement and trust among users. Sustainable pooled liquidity in the market with institutional participation will also help with the challenges of volatile liquidity during downturns.”

Furthermore, Tran believes that privacy-focused non-custodial solutions will soon become mainstream, with multi-chain, secure DEXs like KyberSwap laying the foundation for such a transparency-oriented economy. “Addressing users’ security desires and pain points is always the first priority,” he concluded.

Jazear Brooks, CEO and founder of omni-chain DEX SifChain, shared a somewhat similar sentiment, telling Cointelegraph that the crypto and TradFi markets have been circling each other in recent years, with many individuals from the latter already joining it the digital currency cart. after realizing that the best crypto projects can profit massively from almost all of their conventional financial counterparts. He added:

“The chaos in 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 space that represents timeless virtues of profitable investing in an unpredictable world.”

Brooks concluded by saying that the protective mechanisms of corporate governance can be combined with the populist, fast, shared benefits of decentralized autonomous organizations (DAOs) to create a holistic financial system, one that is fair, transparent and inclusive. “We will see market efficiencies increase as trad-fi systems are redesigned to import cryptocurrencies, and these market efficiencies can then generate additional societal value,” he opined.

Crypto and TradFi are mutually beneficial

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 can help each other. In his view, DeFi has created new investment opportunities not found in traditional markets, allowing more people to accumulate wealth for themselves, adding:

“The crypto sector can sometimes be difficult to break into, especially for those sitting on the fence. That is why it is important that platforms are created that allow users to easily participate in these new forms of investment. The goal on both sides is to generate more income and investments by working together, they have a chance to increase this result exponentially since there is no conflict.”

He further highlighted that as the situation is now, investors who are not familiar with the crypto market have to deal with platforms that can often be difficult to use. However, everyone can greatly benefit from bringing players from the traditional realm and fostering new ecosystems that provide a more user-friendly experience. “Having a platform that removes all operational complexities and minimizes risk will increase trust and adoption,” Onassis said.

Finally, he believes that it is important that regulators allow crypto and TradFi to come together and create viable solutions for their customers rather than complicating things by introducing unnecessary regulations. “Regulators that provide 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 enter the crypto sector, but also introduce a level of stability not previously seen seen in the digital asset area.

He noted the already growing list of mainstream financial institutions that offer their customers the ability to buy crypto using their fiat assets, among other similar options. “The fintechs that offer debit cards also serve as important gateways to mass adoption,” Stochyk said.

Stochyk said that for mass crypto adoption to happen in the near to mid-term, the two areas need to coexist with each other. And much like Onassis, he also believes that regulation is just around the corner, with companies now having to act accordingly to help instill more confidence in this area:

“Building products that are ready to comply with the regulations are the way to go. The merger of crypto and TradFi will bring many new institutional investors and also many private investors who do not want to invest in crypto. When it comes to centralized and decentralized, you cannot live without the other, you will always need a centralized exchange to withdraw money to your bank for example. So they all have to coexist.”

Therefore, as the world continues to gravitate towards an economic landscape that favors the decentralization/transparency ethos, it will be interesting to see how players from crypto and conventional financial ecosystems continue to synthesize their goals and create a new paradigm that allows users to enjoy the best of both worlds.