Collaborative infrastructure saves DeFi-TradFi cooperation

We've all become accustomed to hearing about crypto projects catering to traditional finance and large investment firms applying for exchange-traded crypto funds. But it's easy to forget how hostile and combative the DeFi-TradFi relationship once was.

Of course, these two different financial systems will never completely agree. But realizing that they cannot eliminate the other, hostilities have ceased and lines of communication have been opened.

TradFi understands the potential of blockchain technology and the operational efficiency and ability of decentralized finance to create innovative financial products and services. Likewise, cryptocurrencies have realized that TradFi's infrastructure, vast resources, and customer base are the key to expanding its ecosystem.

Despite finding common ground, technological, ideological and operational gaps persist, creating a gap that will ultimately limit fruitful collaborations if not addressed. Don't forget that bitcoin (btc) is just celebrating its “sweet sixteen” this year, and cryptocurrencies as a whole still have a lot of momentum to gain. On the other hand, conventional banking is so ingrained in society through centuries of growth that it's not going anywhere anytime soon. Therefore, the lack of a mechanism for meaningful cooperation and coexistence will ultimately damage the global economic order.

Since the crypto movement was effectively inserted into the financial order, the primary responsibility falls on it to adapt to TradFi, which operates on the same principles it has for centuries. It's not that TradFi can't change; What happens is that, as an economic guardian, the sector moves at a much slower pace. Expecting change on that scale so soon is like a four-year-old demanding to graduate from college.

As things stand today, common instruments like debit cards are still disconnected from the DeFi protocols and real-world tokenized asset platforms that pique TradFi interest. And buying cryptocurrencies on a centralized exchange to then stake on a DeFi protocol with a separate wallet contradicts the “efficiency” narrative of cryptocurrencies, especially when banks allow customers to log into an app and buy, sell or trade shares with a few touches.

It highlights the desperate need for an interoperability infrastructure that can seamlessly link TradFi systems (including various permissioned currencies and chains) with blockchain-based applications and protocols. Addressing this barrier would allow institutions to expand their commitment to DeFi and cryptocurrencies, while providing new cryptocurrency users with an easy onboarding experience.

DeFi protocols have, to some extent, improved their compliance with KYC and AML processes, but more is needed for banks to get on board. Intense auditing and enhanced security measures driven by automated monitoring tools, for example, would go a long way to increasing TradFi's trust in DeFi.

While maximizing broad collaborations between TradFi and DeFi requires the former to do more heavy lifting, the latter should be willing to lend its support to enhance joint infrastructure solutions with better risk management models and expertise in custody and liquidity provision. .

An infrastructure that takes into account the needs of both ecosystems is the only sure way to maintain continuous dialogue. And some projects are taking the initiative to make this combination more seamless.

For example, Vixichain is a young project with big ambitions to encourage greater TradFi participation in DeFi by inviting financial institutions to act as validators on its supported Layer 1 blockchain. Vixichain creates a secure environment for financial institutions to interact with DeFi protocols on public blockchains through a stablecoin that uses nft technology to ensure traceability and authenticity. Its stablecoin is backed by fiat reserves and backed by its native VIXC token to drive real-world utility in an integrated and compliant environment.

As bitcoin surpasses $100,000 for the first time, there is great hope that together, TradFi and DeFi can forge not only a path toward constructive cooperation, but also an integrated system that addresses the financial needs of billions of people. . For this to happen, both the innovative potential of DeFi and the resources and infrastructure of TradFi are required to lay the foundations for a new, more efficient financial era.