According to the Bank for International Settlements (BIS), connecting cryptocurrencies with conventional finance (TradFi) through the digitization of tangible assets like stocks or real estate on blockchain platforms could result in a tighter integration.
In their latest study on the potential threats to financial stability in cryptocurrencies, Bank for International Settlements experts suggest that the process of representing conventional assets as tokens on distributed networks is strengthening the link between traditional finance (TradFi) and decentralized finance (DeFi).
If current trends persist, the Bank for International Settlements predicts that an increasing amount of assets will be exchanged within the Decentralized Finance (DeFi) environment. To such an extent that the self-reliant or self-referential nature of DeFi may eventually become obsolete and a thing of the past.
As an analyst, I posit that this advancement could significantly broaden the mainstream adoption of Decentralized Finance (DeFi) infrastructure, making it more accessible to a wider audience.
More institutions might join the fray, expanding the scope, and decentralized exchanges (DEXs) – currently unique to DeFi – could find their way into everyday use, becoming mainstream.
Due to these modifications, not only will current links expand, but they may transform in ways that are hard to foresee. It’s possible that connections exist in places that aren’t initially apparent. For example, the causes of the banking stress in March 2023 were complex to identify precisely. However, the hidden exposure of US banks to depositors with substantial investments in cryptocurrency markets was a significant factor that caught many regulators and oversight bodies off guard.
The global financial organization advocates for additional studies and a thorough examination of the regulatory relationship between Decentralized Finance (DeFi) and Traditional Finance (TradFi), aiming to mitigate potential instability concerns that may arise due to cross-impacts, often referred to as “spillovers.
In the ongoing development of Decentralized Finance (DeFi), it’s crucial to delve deeper into several aspects. One key area is understanding how DeFi integrates with traditional finance (TradFi). This becomes increasingly important as we see the tokenization of real-world assets, the application of smart contracts in TradFi, and innovative digital intermediation methods gaining traction.
Investigations could center around exploring possible systemic dangers that might arise as Decentralized Finance (DeFi) becomes more entwined with Traditional Finance (TradFi), notably in essential areas such as banking and insurance. Additionally, it’s crucial to delve deeper into the function of stablecoins in propelling DeFi expansion and the potential hazards stemming from their instability. This examination should encompass both the resilience of the DeFi system itself and the potential impacts on TradFi due to these interconnections.
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2025-04-21 15:11