DeFi's Role in Transforming Traditional Finance

According to PANews, the current financial system is hindered by inefficiencies, limiting economic growth and consuming resources. Many view decentralized finance (DeFi) as a transformative solution to reduce redundancy and unlock true value. DeFi is not merely an alternative but represents the future that traditional finance is set to embrace, supported by favorable policies. More than two-thirds of traditional financial firms are focusing on DeFi. The existing technological infrastructure in traditional finance is labor-intensive, requiring significant manual intervention. As a result, these companies are exploring cutting-edge technologies to reduce costs, improve risk management, and streamline operations. Cryptocurrency is increasingly becoming part of their strategies: 1. Traditional financial firms see DeFi as a solution to operational efficiency issues. 2. Nearly nine out of ten companies are actively investing in or researching the benefits of public blockchains. 3. Traditional finance is embracing its own disruption, recognizing the benefits of transitioning to DeFi-driven infrastructure. It is inevitable that DeFi will become crucial to most core business operations. Traditional finance believes DeFi will bring tangible improvements to the financial system. The skepticism that DeFi would never relate to anything beyond cryptocurrency has long passed. Now, traditional finance views DeFi as both inevitable and an opportunity. Traditional finance denies that private blockchains hold the same value as public permissionless blockchains. Research from last year indicated that central banks are moving away from proprietary blockchains towards open-source software and public networks. The majority of the traditional financial community now sees public permissionless blockchains as essential for leveraging smart contracts and tokenization. Protecting such systems is crucial, requiring strong incentives to develop and maintain open public infrastructure. Traditional finance shows the greatest interest in stablecoins, tokenized assets, and decentralized exchanges (DEX), correlating with increased on-chain transaction volumes in these areas. These three "pillars" are necessary for accelerating market development, providing settlement assets, universal representation of other assets, and composable scalable protocols for executing financial transactions on-chain. In the coming years, these trends are expected to continue growing. The biggest short-term obstacle to DeFi's true economic efficiency is the regulatory environment. Policymakers have a unique opportunity to accelerate development, as traditional finance acknowledges DeFi's inevitability and its improvements over current systems. They align with many cryptocurrency practitioners who strive to protect DeFi's open systems from being stifled before fully maturing. The main barrier to traditional finance embracing cryptocurrency is not the need for stronger infrastructure or practicality, but rather the resistance from banks and market regulators preventing access to DeFi. The period of waiting is over. Four years have passed since the DeFi summer, and global and cryptocurrency markets have experienced events showcasing DeFi's resilience. It is time for regulators to open the gates separating traditional finance from DeFi, allowing companies to embrace this innovative technology.