As digital asset options continue to gain investor attention and acceptance, traditional financial institutions may be considering adding digital assets to their offerings and/or portfolios. As with any other industry, “standing still” is not an option in the financial sector, and harnessing the potential of digital assets can help TradFi organizations access a new and growing enthusiastic customer base. Additionally, adding digital assets can diversify a traditional portfolio, offering a hedge against market declines.
However, any advantage gained by being seen as an early adopter and innovator can quickly be erased if a TradFi institution is not fully prepared for the unique opportunities, challenges and risks that digital assets bring. Below, 11 members of the Cointelegraph Innovation Circle share essential things any TradFi organization should be prepared for if considering digital assets and why these steps should not be skipped.
Focus on strong risk management
One essential thing to remember is the need for sound risk management. Given the high volatility and unique regulatory environment of digital assets, TradFi institutions should have comprehensive risk assessment and management strategies in place. This includes understanding the technology behind these assets, their behavior in the market, and their potential legal implications. – Tomer Warschauer Nuni, cryptomon
Understand how verification and approval work on blockchain
With the possible exception of real-world assets (such as expensive watches, jewelry, and other items that are attached to digital ownership tokens to verify ownership and its transfer), the concept of verification and approval is different with blockchains. In terms of record keeping, the blockchain itself is the constantly updated and verified record. Every transaction is verified and recorded on-chain. –Zain Jaffer, Zain Ventures
Implement comprehensive cybersecurity protocols
Custody is an important factor to consider. The events of the past year show that “not your keys, not your coins” is as relevant as ever. Since insured institutional crypto custodians can be expensive (and defeat the purpose of the aforementioned mantra), an institution should do its due diligence on its own staff and have robust cybersecurity protocols in place, including firewalls, two-factor authentication, multi-signatures and phishing. training, etc. –Timothy Enneking, Digital capital management
Adapt to cryptographic standards and principles
Digital assets must address “cultural liquidity” for TradFi institutions. It is essential to understand and follow the principles, practices and expectations of the crypto community. Decentralization and transparency underpin digital asset markets. To maximize the potential of digital assets, institutions must adapt to these regulations, which can differ greatly from those of traditional finance. –Arvin Khamseh, NFTS SOLD OUT
Create accessible educational content
Education is the name of the game when it comes to digital assets. Much of a TradFi institution’s audience will likely be skeptical or unfamiliar with digital assets such as cryptocurrencies. Beginner-friendly promotions, educational blogs, on-site explanations, and videos written in language your audience understands can make a big difference. –Sheraz Ahmed, STORM Partners
Choose partners and technology carefully
For traditional businesses looking to extend their services into the digital economy, it is worth considering that, unlike people, not all entry points into the ecosystem are created equal. First-time retailers want a guide who knows the terrain and has proven experience delivering reliable solutions. As banks and cryptocurrencies continue to co-evolve, partners and technology must be chosen carefully. – Oleksandr Lutskevych, CEX.IO
Consider capital preservation
The most important thing that traditional financial institutions should keep in mind when approaching digital assets is the concept of capital preservation, or ensuring that there are no losses resulting from avoidable situations. Even if a manager wants to invest in risky assets like cryptocurrencies, he must do so with the profits generated previously, not with the original capital. –Abhishek Singh, Acknowledgment of receipt
Clearly identify the asset classes you are working with
Institutions must be firm in clearly identifying the asset classes they work with, as “digital asset” can be vague. As various digital assets shape this emerging market, it will be essential to educate your audience as well. There are many sectors of digital assets that need to be understood, such as real-world assets, cryptocurrencies, tokens, non-fungible tokens, and many more. –Megan Nyvold, BingX
Be Prepared for Volatility
Digital assets, especially cryptocurrencies, are known for their price volatility. TradFi institutions interested in adding digital assets to their offerings should be prepared for the inherent risks associated with this volatility, which can lead to significant fluctuations in asset values. Rigorous risk management practices are essential. –Antonio Georgiades, Red Pastel
Consider hybrid portfolios
TradFi institutions should consider hybrid portfolios. When integrating digital assets, they should combine traditional and emerging holdings. This addresses changing customer preferences, requires rigorous risk assessment and compliance, and leverages institutional expertise. This approach allows institutions to harness the potential of digital assets while meeting modern investment demands. –Vinita Rathi, Sistango
Prioritize compliance
Web3 regulations around the world are evolving much more rapidly than their counterparts in traditional finance. TradFi institutions should work with blockchain compliance experts to not only stay aware of current legal requirements, but also to prepare for any future changes. – Wolfgang Rückerl, ORL Technologies AG
This article was published through the Cointelegraph Innovation Circle, a vetted organization of top executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. The opinions expressed do not necessarily reflect those of Cointelegraph.
