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10 Ways Crypto Can Learn From TradFi

  • Post published:January 23, 2023

Crypto pioneers and decentralised finance companies often talk about how they want to help people who don’t have access to financial services. However, that’s only half the battle for this young industry to be successful. Consumers around the world need to know that the money they put into crypto companies is safe, secure, and easy to get back when they want to.

Traditional finance companies might not have as many new and unique opportunities and potential as DeFi, but they do have a long history and tried-and-true ways to protect customers’ investments and keep their trust. Below, 10 members of the Cointelegraph Innovation Circle talk about what the crypto industry can learn from the traditional finance industry, including some practices that DeFi companies might want to adopt and change to fit their own customers.

Setting up a system for insurance

The FDIC doesn’t cover DeFi companies like it does for TradFi companies, but that shouldn’t stop us from making our own. The best way to ensure safety and security is to have insurance systems that work and use smart contracts to automatically send payments to people who have been hurt. TradFi uses a bureaucratic system to do this, but we can do the same thing much faster with decentralised systems. Budd White and Tacen

Informing customers about important facts

Before a person invests in cryptocurrency, it’s very important that they:

1) are comfortable handling their own money in a decentralised world, as opposed to the centralised world of financial institutions;

2) have researched reputable wallets and exchanges before sending crypto or money to them; and

3) know about “not your keys, not your coin.” In the decentralised world of finance, it’s important for consumers to know these things. Chris Groshong, CEO of CoinStructive, Inc.

Putting best practises into place from the start

A little bit of care can save a lot of trouble. One of the most important lessons from traditional finance is that it’s usually too late to start using best practises when something unexpected happens. With this in mind, Web3 businesses should make following the rules and protecting user funds their top priorities from the start. Wolfgang Rückerl, ENT Technologies AG

Creating and following rules and regulations

Traditional financial institutions can teach the crypto industry how to keep money safe through regulatory oversight and compliance. These old-fashioned institutions follow strict rules, guidelines, and laws. The cryptocurrency industry could try to follow similar rules while still staying true to the spirit of DeFi. – Theo Sastre-Garau of NFTevening

Putting in place safeguards to give people peace of mind

Insurance would be beneficial in both centralised and decentralised finance (to protect against theft and misuse) (to protect against hacks and exploits). If we could find a good way to insure crypto and fiat client funds, it would make a lot of people and institutions feel better. ReBlock Ventures’ Brian D. Evans

Making sure that customer assets are not mixed up in a bad way

Both cybersecurity and accounting are involved in making sure that customer funds are safe. It’s important to have the right systems in place to make sure that no customer’s assets are mixed up in a way that goes against the custodial mandate. Also, it’s very important to know that only banks are made to work with fractional reserves. Managers of crypto firms need to learn how their firms are different from TradFi organisations. Carlos Gomez, Belobaba Crypto Fund

Putting up safety nets to keep bad people from hurting us

One big difference between TradFi and DeFi is that DeFi doesn’t have any safety nets. Unlike banks and brokerage firms, which have the FDIC and SIPC to protect them from bad actors, crypto companies and their users do not. Even though cryptographic custody is different, everyone in the industry needs to think about these kinds of safeguards if it wants to be on the same level as traditional systems. Oleksandr Lutskevych, CEX.IO

Increasing access and putting more attention on the user experience

In general, users’ funds in TradFi are safe and easy to get to. Crypto has had trouble finding this balance. DeFi solutions, instead of CeFi, are the safest way for users to interact with crypto, but they are hard to get into. To keep client funds safe, we need to make DeFi easier to use and improve the interface and user experience. Pastel Network’s Anthony Georgiades

Imposing consequences for fraud

Don’t give bad people a free pass. There are already a lot of laws in place about not mixing funds, telling people about risks, and different kinds of financial fraud. By following these laws, crimes like the ones that happened with FTX and SBF will happen less often in the open. TradFi has shown us that moderation needs to be backed up by consequences. – XYO Arie Trouw

Not fighting against money controls

Traditional financial controls exist for a reason, and they grew out of things that happened in the past. Money ideas like “college dorm rooms” and “anti-establishment” have to go. Zain Jaffer, Zain Ventures.

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