Crypto Is Now a Non-negotiable for Traditional Banks

Merely adopting cryptocurrencies may not ensure continued relevance for banks. Instead, they must actively collaborate with suitable partners to build future-proof financial systems. Failing to do so could result in these emerging tech sectors leaving traditional banking behind.

It’s not likely that Decentralized Finance (DeFi) models will replace traditional ones entirely. Existing financial market structures and regulatory protections serve crucial functions like managing institutional liquidity and ensuring customer safety.

Instead, we believe that the real opportunity is where the two worlds will enhance each other.

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What can banks do?

More and more financial institutions are recognizing that cryptocurrency offers more than just a novel investment option. To these banks, it presents a chance to keep existing customers and draw in new ones who find the prospect of higher yields and diversification appealing. Here’s what they should ponder upon:

Trust – a bank’s most valuable asset

In an unstable and insecure cryptocurrency market, which often fails to meet the desired reliability and safety expectations of conventional investors, banks have an opportunity to capitalize on these gaps.

In 2022, when FTX collapsed, there was a surge of investors rushing towards regulated platforms, seeking secure havens like ours. This event served as a stark demonstration of how trust becomes paramount during turbulent periods, overshadowing all else.

With cryptocurrency regulations becoming clearer, it’s expected that a greater number of investors will transfer their resources into reliable entities. After all, they yearn for security and to reap the rewards, despite potentially higher costs associated with these entities.

CeDeFi – a likely scenario

For the time being, Decentralized Finance (DeFi) solutions will keep vying with conventional ones; however, it’s expected that they’ll eventually merge. By combining DeFi’s technological aspects and Centralized Finance’s (CeFi) Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, we foresee “CeDeFi” models emerging as the preferred structure for future financial systems infrastructure.

As a financial analyst, I strongly recommend exploring the benefits of Decentralized Finance (DeFi) for our banking institution. Leveraging its flexible, streamlined systems, and groundbreaking financial tools will enable us to provide our clients with fresh investment opportunities and increased yields.

Simultaneously, traditional finance (TradFi) or centralized finance (CeFi), leverages centuries of expertise in managing financial systems and serving clients, ensuring the necessary safeguards and guidelines are in place to welcome both established institutional clients and a fresh influx of customers.

Please be aware that the opinions shared within this article belong exclusively to the author and may not align with those held by CoinDesk Inc., its proprietors, or associated entities.