How TradFi and DeFi Convergence Shapes the Future of Finance: Crypto’s Role

In physics, Newton’s Laws of Motion dictate the outcome of two moving objects colliding. Different factors such as mass and speed make calculating the impact of, say, a linebacker tackling a wide receiver in the open field relatively predictable.In society, however, when two competing ideologies clash, the results are less predictable. Factors like resources and social capital can help experts make historically rooted predictions, providing analyses for what to expect during unstable times, but in a far less scientific manner.While economics is a social science, only one financial model has dominated the global economy for centuries, remaining largely unchallenged, until recently.TradFi vs DeFiThe creation of Bitcoin, the world’s original cryptocurrency, marked a pivotal moment in modern economics: the first time an alternative financial system was actually capable of challenging the centralised banking industry status quo. Of course, this didn’t happen immediately. It took over a decade of events and technological developments for the decentralised model that spun out of Bitcoin’s launch to gain its place.But political, religious, or social conflicts tend to result in one side asserting dominance over the other, with little or no room for compromise.While traditional finance (TradFi) and crypto are diametrically opposed in theory, the former has grown increasingly drawn to the latter’s maturation, expansion, and technological achievements.Decentralised finance (DeFi), for instance, represents one area that is particularly appealing to institutions as it includes tokenised real-world assets and other blockchain-based applications with high-potential revenue opportunities.Likewise, the crypto industry, originally established to reject TradFi’s centralised system, has increasingly opened up to the idea that institutional participation is beneficial for expansion.Blockgyan Academy Day 191How does DeFi differ from TradFi?#BTC #ETH #DeFi #TradeFi https://t.co/VWFiT980a3 pic.twitter.com/5vwgI18WTv— BlockGyan (@BlockGyan247) December 20, 2024In addition to these examples, the competing financial models are moving together while remaining rivals in other ways; similar to the relationship between China and the US, where economic competition coexists alongside cooperation on trade and scientific research.Competing Models Move Closer TogetherJust like we don’t know what the future holds for China-U.S. relations, the same can be said for the relationship between crypto and TradFi. However, pundits and insiders believe that the future of finance will inevitably merge both financial models.There’s good reason to believe this is likely, since crypto’s market capitalisation is racing toward $4 trillion, while TradFi, which still serves as the gateway to the rest of the globe’s wealth, pursues its decentralised rival. Yet, despite growing interest in digital assets and DeFi by retail and institutional investors, traditional financial systems will remain the backbone of global finance.As DeFi and blockchain-based assets take on a larger role in the economy, TradFi’s desire to engage with its decentralised counterpart will keep rising. Despite this, tangible institutional crypto involvement lags behind its desire to participate.Compliant Blockchain Enables DeFi IntegrationUnderstanding the mutually beneficial relationship of TradFi-DeFi integration, Vixichain is an example of a company working to expand traditional institutions’ limited role in blockchain ecosystems. Vixichain realises that financial institutions are accustomed to complying with well-defined regulatory frameworks that include consumer privacy protections. With this in mind, it built a compliant and private blockchain designed for banks, providing them with a safe space to interact with DeFi.DeFi meets Real World AssetsDeFi aims to replace every aspect of the traditional banking sector. Loans and Mortgages are no exception, no need to wait for weeks until banks verify the processes. Using #DeFi, you’d be able to take out a loan or mortgage in seconds.#DeFi… pic.twitter.com/u9ci3Sm0PI— JA (@ja1405_ja) April 3, 2024Vixichain’s Layer-1 blockchain helps TradFi institutions overcome their reluctance to engage with unregulated public blockchains and gain exposure to expansive investing opportunities through DeFi protocols, in a compliant manner. It accomplishes this by onboarding financial institutions to serve as network validators, where they receive fees for validating end-user transactions on Vixichain’s blockchain.Vixichain Bridges DeFi and TradFi ModelsEnd-users connect to Vixichain’s crypto wallet, which allows them to store, send, and accept crypto, and then select their preferred institution to validate the transaction based on pre-set rates. Vixichain grants safe access to the world of DeFi through a non-fungible stable token (NUSD) backed by securely stored fiat. By using NFT technology to create a stablecoin, NUSD acts as a completely traceable bridge to

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Dec 23, 2024 - 14:30
How TradFi and DeFi Convergence Shapes the Future of Finance: Crypto’s Role

In physics, Newton’s Laws of Motion dictate the outcome of two moving objects colliding. Different factors such as mass and speed make calculating the impact of, say, a linebacker tackling a wide receiver in the open field relatively predictable.

In society, however, when two competing ideologies clash, the results are less predictable. Factors like resources and social capital can help experts make historically rooted predictions, providing analyses for what to expect during unstable times, but in a far less scientific manner.

While economics is a social science, only one financial model has dominated the global economy for centuries, remaining largely unchallenged, until recently.

TradFi vs DeFi

The creation of Bitcoin, the world’s original cryptocurrency, marked a pivotal moment in modern economics: the first time an alternative financial system was actually capable of challenging the centralised banking industry status quo.

Of course, this didn’t happen immediately. It took over a decade of events and technological developments for the decentralised model that spun out of Bitcoin’s launch to gain its place.

But political, religious, or social conflicts tend to result in one side asserting dominance over the other, with little or no room for compromise.

While traditional finance (TradFi) and crypto are diametrically opposed in theory, the former has grown increasingly drawn to the latter’s maturation, expansion, and technological achievements.

Decentralised finance (DeFi), for instance, represents one area that is particularly appealing to institutions as it includes tokenised real-world assets and other blockchain-based applications with high-potential revenue opportunities.

Likewise, the crypto industry, originally established to reject TradFi’s centralised system, has increasingly opened up to the idea that institutional participation is beneficial for expansion.

In addition to these examples, the competing financial models are moving together while remaining rivals in other ways; similar to the relationship between China and the US, where economic competition coexists alongside cooperation on trade and scientific research.

Competing Models Move Closer Together

Just like we don’t know what the future holds for China-U.S. relations, the same can be said for the relationship between crypto and TradFi. However, pundits and insiders believe that the future of finance will inevitably merge both financial models.

There’s good reason to believe this is likely, since crypto’s market capitalisation is racing toward $4 trillion, while TradFi, which still serves as the gateway to the rest of the globe’s wealth, pursues its decentralised rival.

Yet, despite growing interest in digital assets and DeFi by retail and institutional investors, traditional financial systems will remain the backbone of global finance.

As DeFi and blockchain-based assets take on a larger role in the economy, TradFi’s desire to engage with its decentralised counterpart will keep rising. Despite this, tangible institutional crypto involvement lags behind its desire to participate.

Compliant Blockchain Enables DeFi Integration

Understanding the mutually beneficial relationship of TradFi-DeFi integration, Vixichain is an example of a company working to expand traditional institutions’ limited role in blockchain ecosystems.

Vixichain realises that financial institutions are accustomed to complying with well-defined regulatory frameworks that include consumer privacy protections. With this in mind, it built a compliant and private blockchain designed for banks, providing them with a safe space to interact with DeFi.

Vixichain’s Layer-1 blockchain helps TradFi institutions overcome their reluctance to engage with unregulated public blockchains and gain exposure to expansive investing opportunities through DeFi protocols, in a compliant manner.

It accomplishes this by onboarding financial institutions to serve as network validators, where they receive fees for validating end-user transactions on Vixichain’s blockchain.

Vixichain Bridges DeFi and TradFi Models

End-users connect to Vixichain’s crypto wallet, which allows them to store, send, and accept crypto, and then select their preferred institution to validate the transaction based on pre-set rates.

Vixichain grants safe access to the world of DeFi through a non-fungible stable token (NUSD) backed by securely stored fiat. By using NFT technology to create a stablecoin, NUSD acts as a completely traceable bridge to DeFi, while maintaining institutional-level privacy and compliance.

While these two models were once on a collision course, they now seem destined for co-existence. As finance evolves, its future remains unclear, but bridging the gaps between the two rival models with innovative solutions will enable an efficient hybrid model to naturally take shape. This article was written by Ariel Shapira at www.financemagnates.com.