Traditional banks have long been wary of cryptocurrencies and DeFi, but with greater regulatory clarity, approval from heavyweights TradFi, and growing customer demand, it’s clear that cryptocurrency is here to stay.
But simply “accepting” cryptocurrencies may not be enough to maintain their relevance. Banks need to fully engage with the right partners to help them develop next-generation financial infrastructure, or the fintech and blockchain sectors will continue to evolve without them.
While some believe that DeFi models are destined to displace traditional models, this scenario is unlikely. Current market infrastructures and regulatory safeguards are there to manage institutional liquidity and protect customers.
Rather, we believe that the real opportunity lies in the fact that the two worlds reinforce each other.
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What can banks do?
Many banks are realizing that cryptocurrencies are more than just a new asset class. They see it as an opportunity to retain and attract customers who are attracted to the higher yields and diversification opportunities of cryptocurrencies. Here are some things to consider:
Trust – a bank’s most valuable asset
In a cryptocurrency market where many services lack the stability and security that traditional investors need, banks can use this to their advantage.
When FTX collapsed in 2022, we saw many investors flock to regulated entities that desperately needed a safe haven, including ours. It was a powerful reminder that trust is everything in turbulent times.
As cryptocurrency regulation gains momentum, we’ll likely see more investors continue to move their funds to entities they can trust. Naturally, they want to feel safe and enjoy all the benefits, even if those entities are more expensive.
CeDeFi – a likely scenario
For now, DeFi products will continue to compete with traditional products, but it is likely that the two will blend together at some point. By leveraging the technical components of DeFi and the KYC and AML requirements of CeFi, we envision “CeDeFi”-based models becoming the most appropriate form that will form the underlying infrastructure of future finance.
Banks should leverage the features of DeFi, offering flexibility, more efficient systems and innovative financial products that can provide customers with new yield opportunities.
At the same time, TradFi or CeFi, brings hundreds of years of experience in financial system governance and customer service, providing the protection and safeguards needed to attract institutional clients and a new wave of customers.
That said, we believe that financial institutions – like banks – that are able and willing to bridge the two worlds will find many exciting opportunities in the evolving financial landscape of the future – but they need to act sooner rather than later.
Disclaimer: sygnum.com/disclaimer-2/
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
