Bridging DeFi and TradFi: how will they converge in the future?

As Decentralised Finance and Traditional Finance get closer to one another, I anticipate new opportunities opening to the financial world in the near future. This synergy will allow us to step out of the traditional, bureaucracy-filled and heavily regulated TradFi processes we’ve been used to so far. In fact De-Fi groundbreaking blockchain technology is shaking everything up while changing our relationship with money.

Among the most valuable aspects of this marriage there is the tokenization process, where real-life assets can become tradable digital representations on a blockchain. I believe this bridge will have multiple advantages: first off, tokenization increases liquidity by dividing assets into smaller, more easily traded pieces. As a result, TradFi's liquidity could increase as more investors enter formerly illiquid markets. Traditional trade finance institutions, for example, that provide corporate capital to other businesses, have improved by offering blockchain-enabled solutions in which investors can receive their returns in tokens and then swap them back for other fungible ones. These blockchain-enabled platforms also increase efficiency through automation: by running smart contracts, financial transactions are conducted automatically whenever the requirements are met, which is critical to DeFi's success.

This whole process allows TradFi to cut down on wasteful spending and mistakes made by humans. Taking again as an example, one more time, traditional finance firms offering corporate funding, we can refer to automated loan approvals through the analysis of financial data and applying pre-defined criteria. In this way, smart contracts can automate the loan approval process, saving time and removing human bias.

Another interesting aspect is that tokenized assets can be traded 24/7 across borders, bypassing geographical restrictions, meaning middlemen and geographical barriers will no longer exist.

Overall, the acquisition of De-Fi may provide people more control over their money regardless of where they live, encouraging financial inclusion on a global scale by giving banking services to populations that do not have access to them. Blockchain technology encourages honesty and transparency in monetary transactions, making them more trustworthy.

However, in order to ensure financial stability and protect consumers, regulatory frameworks will have to change and adapt. A potential collaboration between regulators and DeFi key players might result in compliant decentralized platforms, which would include transparency and security in addition to TradFi's monitoring and consumer protection.

In this way, regulated platforms would be more appealing to institutional investors, who are currently apprehensive of the uncontrolled Decentralized Finance sector.

Summarizing the overall impact

This convergence can lead to a financial system that is in a nutshell:

• More Efficient: Automation and streamlined processes can reduce costs and transaction times.
• More Accessible: Tokenization and micro-investing can open doors for new participants, especially the underbanked.
• More Transparent: Blockchain technology fosters trust and transparency in financial transactions.

I envisage the future of this financial sector as cooperative rather than competitive. Merging Decentralised Finance and Traditional Finance could result in innovative financial services that are more accessible and efficient overall.