Will TradFi and DeFi fully merge into one system?

The DeFi disruption extends beyond the business models into the infrastructure. Banking leaders are plodding through enough technological transformation without adding the intimidating complexity of blockchain’s distributed ledger. It is arguably a national security issue when one considers that the rest of the world is moving swiftly towards digital assets. The US financial industry cannot afford to be left behind, given the dollar is the de facto reserve currency of the world.

TradFi on the buy-side and sell-sides are seeing compelling opportunities on the horizon for blockchain, which up until now, have essentially been either de facto prohibited or implicitly off limits because of the opacity and lack of regulatory clarity. TradFi is collaborating with the DeFi world for various relationships to make this happen: a bank can white label a crypto product, overtly license the technology and create a TradFi company, build its own offering from scratch more tailored to their client's needs, or cobble together its own solution by cherry picking bits and pieces from existing DeFi players.

Institutional money has been just waiting for the green light to flood into the market. And we're basically getting that green light now. But legacy systems and fragmented data infrastructure will fall short of mastering the inherent operational challenges. Firms must be able to rapidly scale and execute any investment strategy with precision and efficiency. To do so, they can implement a robust data strategy that supports both illiquid and tradeable asset classes.

The quantum physics of crypto

Do not be surprised if, within three years, there will be no distinct TradFi and DeFi worlds. Every tradeable asset class will be on blockchain-based instruments. Right now, real estate, mutual funds, alternatives, and credit are the leading invested digital asset classes, with stablecoins number one.^xOur future on-chain will see that the moment any security is purchased, it clears, and cash is exchanged simultaneously.

Every fund and every institution will have their traditional assets and digital assets all in the same portfolio. Every firm will need the capability to commingle the two from a technology perspective. The nature of crypto on the blockchain mirrors that of light in quantum physics, which can be both a wave and a particle. Crypto can be both a currency and an investment — at the same time. Institutions and firms that are able to master this duality, in terms of blockchain financial infrastructure, will be positioned to seize an advantage as TradFi and DeFi converge.