Finding harmony on the blockchain to encourage participation in TradFi

Traditional finance has taken a dramatic turn from the industry's initial dismissive reaction to bitcoin (btc) and blockchain technology in general. Earlier this year, we witnessed the SEC approve Ether and bitcoin spot ETFs, including those from major asset manager BlackRock. At the same time, State Street, a major global bank, is planning to launch a stablecoin, and TradFi trading hub Robinhood has crypto-200-million-bitstamp-deal/718748/” target=”_blank” rel=”nofollow”>expanded their crypto operations.

While rigidly centralized institutions play a disproportionate role in crypto developments, they could introduce risks to the decentralized spirit of the industry., Most Web3 enthusiasts are open to participating in TradFi as it would speed up its adoption. Regardless, the links between the financial world at large and the emerging digital asset sector are steadily advancing.

Despite high-profile ETFs, growing interest in DeFi, and real-world tokenized assets, many financial institutions are reluctant to directly interact with various blockchain networks. The reason for this is not due to concerns about SEC lawsuits or the inherent volatility of cryptocurrencies; rather, it relates to the very nature in which banks operate.

As trusted intermediaries that manage customer assets and provide financial services, most banks find it difficult to interact with public blockchains where transaction history and other private data are available for everyone to see. While transparency and openness are core principles of Web3 and are used to build trust among decentralized communities, this could lead to private customer information being exposed within institutions.

Financial institutions will always have to comply with local regulatory frameworks, which complicates interaction with public blockchains and limits flexibility in the rapidly evolving digital asset space. As such, banks that want to interact with blockchains and cryptocurrencies, for one reason or another, typically choose to do so through private blockchains due to privacy and compliance considerations.

Private networks provide banks with a controlled environment that allows them to experiment within a secure and compliant space, allowing more partners to join over time. While this is good for institutions looking to understand blockchain technology or perhaps implement it to facilitate their own payment systems, it blocks access to the vast majority of DeFi products, applications, and protocols. It also denies access to any liquidity stored on public blockchain protocols.

Of course, there are cross-chain bridges, sidechains, layer-2s, and other solutions that financial institutions could leverage to gain a bit more exposure to the cryptocurrency markets. However, these solutions run the risk of introducing the same security threats and vulnerabilities that led financial institutions to select private blockchains in the first place.

This puts financial institutions, especially smaller banks that lack the resources to take calculated risks, in a bind when trying to establish the most robust digital asset strategies to meet the growing demand from retail and institutional clients. However, there are new projects that are working to close these gaps and expand the reach of institutions entering the blockchain.

Vixichain, for example, is developing a solution to this problem faced by institutions. Its layer-1 blockchain, which is set to launch early next year, allows institutions to interact with cryptocurrencies and DeFi in a compliant manner. The network bridges the gap between legal frameworks and the innovative potential of web3 by using a stablecoin built on nft technology. While it may sound unorthodox, this allows for traceability and verifies authenticity, combining the best aspects of public and private blockchains.

Vixichain aims to build a private blockchain where financial institutions act as validators. This allows users to receive quotes from available nodes and choose the relevant partner to execute payments, while its nft stablecoin facilitates access to the wider crypto ecosystem.

Those working in the Web3 industry understand the value of mainstream adoption, and strategically cooperating with TradFi offers more rewards than risks. For example, compliance expertise, risk management, and increased liquidity are just a few of the benefits TradFi brings to the table. The key to leveraging TradFi’s desire to participate in digital asset markets requires innovative solutions that strike a balance between the advantages of public and private blockchains.