Traditional Finance and DeFi: The Inevitable Path from Opposition to Integration

Author: Paradigm

Translation: Baicai Blockchain

The current financial system is hindered by inefficiency, which not only suppresses economic growth but also consumes vast resources. The stakes are high, and the cost of inaction is even higher. Many see decentralized finance (DeFi) as a transformative solution—a way to cut redundancy and unlock real value. DeFi is not just an alternative; it's the future that traditional finance (TradFi) will embrace. And it all begins with policies that support its flourishing.

Over Two-Thirds of Traditional Financial Firms Are Watching DeFi

Today’s traditional financial institutions rely on outdated technological infrastructure and systems that are labor-intensive and require significant manual intervention. As a result, TradFi firms have been actively exploring cutting-edge technologies, seeking ways to reduce costs, improve risk management, and streamline operational efficiency. Cryptocurrency is increasingly becoming part of their strategic planning:

1. TradFi views DeFi as a solution to operational inefficiencies.

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

3. TradFi is embracing its own disruption, fully aware of the gains achievable by transitioning to DeFi-driven infrastructure.

It Is Inevitable That DeFi Will Become Critical to Most Core Businesses

Traditional finance clearly believes that DeFi will eventually become essential to its core products and business lines. This conviction stems from the belief that DeFi will bring tangible improvements to the financial system.

We’ve come a long way from the days when skeptics claimed DeFi would never matter beyond crypto. Now, TradFi sees DeFi not only as inevitable but as an opportunity.

TradFi Denies That Private Blockchains Hold Equal Value to Public, Permissionless Ones

Earlier last year, research showed central banks abandoning proprietary blockchains and increasingly shifting toward open-source software and public networks. Today, most of the TradFi community recognizes that public, permissionless blockchains are crucial for unlocking the advantages of smart contracts and tokenization.

Safeguarding these systems is vital, requiring strong incentives to develop and maintain open, public infrastructure.

TradFi’s Focus: Stablecoins, Tokenized Assets, and Decentralized Exchanges (DEXs)

Traditional finance shows the strongest interest in stablecoins, tokenized assets, and decentralized exchanges (DEXs), aligning with the growing on-chain transaction volumes in these areas.

These three pillars are essential to accelerating market development, as they now provide a settlement asset, a universal method for representing other assets, and scalable, composable protocols to execute financial transactions on-chain.

In the coming years, these trends are expected to continue moving upward and to the right.

The Biggest Short-Term Barrier to Unlocking Real Economic Efficiency in DeFi Is the Regulatory Environment

Policymakers have a once-in-a-generation opportunity to accelerate progress. TradFi understands that DeFi is inevitable and represents an improvement over most existing systems. At this point, they share a fundamental view with many in the crypto community, who have long fought to protect DeFi’s open systems from being stifled before the innovation can fully mature. The primary obstacle to TradFi’s adoption of crypto is not a need for stronger infrastructure or lack of utility—it’s that many banks and market regulators are preventing TradFi firms, banks, exchanges, and funds from engaging with DeFi.

The era of patient观望 has ended. It has been four years since the DeFi summer, during which global and crypto markets have weathered multiple events demonstrating DeFi’s antifragility. It’s time for regulators to begin opening the gates that separate TradFi from DeFi, allowing traditional financial institutions to embrace the potential of this innovative technology.