Cryptocurrency has become a necessity for traditional banks

Author: Lucas Schweiger Source: coindesk Translation: Shan Ouba, Golden Finance

Traditional banks have long been cautious about cryptocurrencies and DeFi, but with increasing regulatory clarity, endorsements from TradFi heavyweights, and growing customer demand, it’s clear that cryptocurrencies are here to stay.

But simply “accepting” cryptocurrencies may not be enough to stay relevant. Banks need to fully collaborate with the right partners to help develop the next generation of financial infrastructure, otherwise the fintech and blockchain industries will move on without them.

While some believe that the DeFi model is destined to replace the traditional model, this is unlikely to happen. The current market infrastructure and regulatory safeguards are designed to handle institutional liquidity and customer protection.

Instead, we believe the real opportunity is the mutual promotion between the two worlds.

What can banks do?

Many banks are realizing that cryptocurrencies are more than just a new asset class. For them, it’s an opportunity to retain and attract clients who are attracted to cryptocurrencies’ higher returns and diversification opportunities. Here are some things to consider:

• Diversify products:Banks can protect their current assets under management, diversify their products, and win new business by attracting the next generation of crypto-native clients.

• Staking as a Service:Banks can leverage their trusted infrastructure to offer clients new revenue streams. By working with the right technology partners, staking services can be offered to both institutional and retail clients.

• Tokenization:Tokenized products backed by real-world assets can provide new revenue streams and unlock otherwise restricted markets.

• Blockchain-powered settlement:Blockchain-powered multi-asset settlement networks can help banks meet and exceed the T+1 settlement standards that many major players struggle to achieve.

Trust — A Bank’s Most Valuable Asset

In crypto markets, many services lack the stability and security that traditional investors seek, and banks can take advantage of this.

When FTX collapsed in 2022, we saw many investors flock to regulated entities who were desperate for a safe haven, including our own. It was a powerful reminder that trust trumps all in times of turmoil.

As cryptocurrency regulation improves further, we’ll likely see more investors continue to move their funds to entities they can trust. Naturally, they want to feel safe and reap all the benefits, even if those entities are pricier.

CeDeFi – A Possible Scenario

For now, DeFi products will continue to compete with traditional products, but the two will likely converge at some point. By leveraging the technical components of DeFi and the KYC and AML requirements of CeFi, we expect a model based on “CeDeFi” to become the most suitable form and become the underlying infrastructure of future finance.

Nevertheless, we believe that financial institutions (such as banks) that can connect the two worlds and are prepared to do so will find many exciting opportunities in the evolving future financial landscape - but they must act early.

Banks should leverage the capabilities of DeFi to provide flexibility, more efficient systems, and innovative financial products to provide new opportunities for customers to earn.

At the same time, TradFi or CeFi, with hundreds of years of experience in financial system governance and customer service, provides the necessary protections and guardrails to attract institutional clients and a new wave of customers.