Topic: The outcome of merging traditional finance and decentralised finance. (Read 494 times)

Merging decentralized finance (DeFi) with traditional finance might seem plausible, but let's not forget that DeFi emerged to address the loopholes in traditional finance. In my opinion, instead of a merger, we'll see more adaptation of DeFi principles as time passes, or traditional finance will become more open to embracing decentralized technologies. The latter will likely lead to a more inclusive and efficient financial system.

Merging decentralized finance with traditional finance will not make financial sense because they're two opposing sides, one is centralized while the other is centralized, they serve different purposes, and merging them both will remove their core values. If this is done it'll bring more confusion than good, so they're better off serving their purposes differently, cryptocurrency is better off being decentralized and banks activities are traditionally centralized, that is the way they were created to function.

What decentralized finance needs is to invent a better system so that security concerns would no longer be shared all the time by the people. If decentralized networks were to achieve something as safe and secure as commercial banks then they would definitely become a huge threat to the government.

I just don’t see how centralized and decentralized can co-exist it’s either one or the other. We should try to make decentralized systems become better instead of trying to cooperate it with a concept that crypto is directly an opposite of.

There's no doubt of your figures @jrrsparkles. The crypto industry is not totally decentralized to the core the the government wouldn't have a role to emerge and play on it in as much as the crypto currencies are relatively connected with the traditional currencies which is totally controlled by the government.
The government would always have the capacity of approval and disapproval to decide what region these decentralized non custodial coins can actually exist to be traded. And of the government also ensuring some securing awareness over this decentralized currencies, they systematically employed the variety of identity reviews on the decentralized exchange Blockchains where holds the validation of trading these decentralized currencies in as much as it's a merged system of the decentralized and centralization of the digital coins and the Traditional currencies.

This is already happening and that is the reason we are seeing RWA projects and DePin are showing substantial growth recently. What i am seeing as a problem is regulation. We don't yet know how the regulator will manage this or what type of condition they will implement to protect user funds. Crypto has always been a wild west and its not unreasonable to think that the government will try to protect their users funds at any cost. Some people will be angry about this but crypto is still an unfamiliar territory for most people, so they can fall for scams and manipulation.

Decentralized currencies are certainly good but traditional currencies associated with defi have decreased in value as blockchain technology has improved. defi projects are not good and many projects are closed. defi may still be considered very useful and easy by many but of course it has its downsides which should not be forgotten. Check out the projects and take a look. Never compromise with mistakes.

i personally think that this might be a good step for allowing blockchain technology into
the mainstream however it's not gonna be as authentic and true to itself as the pure decentralized
finance

i cannot think of a way for banks for example to implement decentralized features into
their system without compromising each of the system's core values but if they could then i think
it could open up a lot of possibilities

I think this is why. https://www.fxstreet.com/cryptocurrencies/news/ondo-moves-95-million-worth-of-ousg-assets-to-buidl-as-tokenized-fund-attracts-245-million-since-debut-202403281030

If you're still holding your ONDO bag, you would see as of today that the project in fact did live up to the hype it generated. I had bought some shortly after it went live on Bitget, I didn't sell off and now I'm glad I didn't because of the current surge in its price.

Yes you are all right, Defi is very suitable when viewed from the ease and APY offered, as easy as depositing and locking crytpo without any conditions, but often hacks occur which results in no matter how high the profit earned will feel useless, maybe this is a choice between storing in dex or in cex which is different between security and profit earned. I used to experience loss in defi too but now I prefer to vault in cex. I understand the risk of having a cex account,  I think both traditional and decentralized have the same very useful functions, and I still use both in a suitable condition. between habit and progress is different for everyone.

I did bought a little bag upon its listing but it's still uncertain if the project will live up to the hype it's generating. I would advise you invest lil amount of fund for now. You can also take advantage of this event to increase your holdings.
https://gleam.io/49W7f/discord-treasure-trove-ondo

Could be. But what if governments make "De-Fi" illegal? Then, developers will be afraid of launching truly-decentralized financial applications. If caught, they're going to need to pay a fine or even face jail time. The risk is definitely not worth it. We all knew this was going to happen ever since Bitcoin came to the world back in 2009.

If they can't beat the revolution, they will centralize it or go as far as "banning" it from the face of the Earth. A dark future awaits for the crypto/Blockchain industry. I hope I'm wrong and things turn out to be better in the long run. Maybe there's "light at the end of the tunnel"? 

Well they can't stop decentralization of bitcoin (or most alts) but they could definitely stop people from using decentralized things, or even if not stop, at least try to ban it, make it illegal. That would be the only thing that would make sense considering the fact that we are talking about a bigger deal, something that will not be all that smart and I think they will not do that.

There are some big on centralization (dictatorship) nations that will of course ban it, but the modern world will see that it is not going to be all that easy to handle that, so they will just regulate it. Plus, when you give people freedom, they will realize that it will be taxed anyway, so it is not going to hurt the government as much as we think it would.

The sad thing is that it's more trustworthy with the traditional finance to do investments than of deFis. And that is with too many concerning issues about the flaws that have been found with most of them. I think that the devs of it are just testing and wanting to take a look at their project and if it becomes successful, that's the time they'll act on and it seems that's the way to go and they've become successful and have forgotten those type of issues.

It is not about worrying but being alarmist bout the future of Defi or the decentralization of the most popular blockchains in our ecosystem, is rather trying to guess in before what could happen and what approaches the enemies of dece realization could use to discredit Bitcoin, Ethereum, and the decentralized finances in general. The most direct way which comes to my mind would be a dual strategy to implement centralized solutions to catch the attention of people who may like Cryptocurrency, while at the same time to find vulnerabilities and hack the biggest decentralized platforms in the Blockchain, specially Uniswap. If they manage to make people to lose most of their blocked liquidity in UNI, that would serve for them as a cautionary tale for the rest of the people to only stay and deposit their value/wealth in centralized platforms and exchanges.
The security team of Uniswap and other similar Defi are better to be careful and review their code in as often as possible, because I don't have any doubt they are going to be heavily targeted in the coming years.

Blockchain brings together traditional and decentralized finance, which can expand access and improve efficiency. However, there are issues such as regulation and safety that require attention. Implementation of institutional products and standardization can help successful integration.

It is a valid point and correct observation that there are numerous DEFI platforms collapsed during the past years, due to security breach in their smart contracts, resulting in significant losses for investors and casting shadow over DEFI industry, it is a serious concern, however it is likely to be resolved with the technological advancement.

I firmly believe that once reliable security systems are established with evolution of technology, traditional finance will eventually integrate with DEFIs

If they get to De-Fi, then people will definitely come up with something new, decentralized, progress does not stand still. Therefore, there is no need to worry.

What is very pronounced may be from the identity for fiat financial institutions, because there is a clear legal umbrella including for humanitarian needs even though there may be a very large number, of course this is an obligation for protection even until later in the future (if suspected in suspicion can be followed up).
Crypto does make it easy, including children who do not have a 13-16 year old identity card can indeed play with finances and no one is watching because they do not have an identity.

For me, traditional and crypto are very combined and useful because there is a condition that each of these becomes the right place for investors or means of exchange, it's the holder of the asset. Until now for me it is still balanced because of the progress of the times people using crypto still use fiat and vice versa. I don't see any dirty competition between them, it all depends on the owner.

Decentralization is just hanging around there n the corner because every government realizes that they can't stop decentralization so they have been introducing strict scrutinization of its users by imposing heavy KYC compliance policies, pushing exchanges to delist privacy currencies and so on. But as I said they can never stop the decentralized crypto so as community we need to start supporting the actual decentralization over the centralized project if we wish crypto wants to be exists in the future.

People just want to make money. They don't care if ETFs or other financial instruments pose a centralization risk to crypto/Blockchain tech. Convenience goes above all else. What we need to do as a community is fight against the rising powers of centralization.

As long as we keep crypto decentralized, big companies and mainstream governments will have a hard time trying to "destroy" the revolution. We can't tell what will happen in the future. Therefore, we can only hope for the best. Who knows how long "De-Fi" will last?

The success of "De-Fi" was based on providing loans with better returns than what banks give you, security compared to deposits in CEX, complete trust in the service provider or the need to pay taxes, as all transactions in CEX can be registered and subject to tax, so governments do not like "De-Fi" because it loses some liquidity outside the banking sector and because some of that liquidity may not be subject to taxes.

De-Fi developers may accept mandatory KYC if these platforms are banned or there are prison or fine penalties imposed on developers.

Lot to unpack in here so starting from the first:

Sure, but this doesn't mean that people can use crypto to escape regulations or economic sanctions. It used to be the case but crypto tracking has become way more sophisticated now

Transparency doesn't necessarily mean public blockchains like we see today. It's all about auditability. And stakeholders aren't having a vote here. It's about regulations. You can't have a stake in some company for example without complying with regulations. That's not collaboration, that's just following rules. Also there's no system ready for meaningful decentralized systems that would allow you to use tokens as company shares.

Standardisation isn't really a problem. It's pretty much inevitable. Of course there will be alternative methods as not everyone ever use same standards with everything.
But what comes to scalability, i find it funny that people are speculating with tokenomics like coins would be worth more so much that it makes the whole network too expensive to use. I find it similar to people valuing gasoline to so expensive that no one could afford to drive with cars.

Btw, Dusk is pretty much trying to everything you were talking about. But i am not sure how many obstacles they still have to overcome.

That is a fair point. People on the internet immediately believe that Bitcoin and other crypto currencies being immediately included in traditional banks or tools in the United States or in the European Union is something good. But someone aware of the main objective of Bitcoin is (decentralization) would say that those adaptations of Bitcoin to the markets are rather efforts to centralized the use of Bitcoin, so people interested in Bitcoin and other major cryptocurrencies won't bother to have a non custodial wallet, and only keep their funds in those centralized instruments.
For example, there have been some banks which have announced to start to offer Bitcoin services to their clients with a high tolerante to volatility. Those potential clients would have had a decentralized wallet on their own eventually, if they were truly interested in Bitcoin. Now they have the apparent comfortability to have their BTC in the same bank account their FIAT is.
The apparent sense of legitimacy which is granted to Bitcoin by those centralized institutions comes at the cost of centralizing the holding of satoshis and the value of them, it is exactly the opposite on what the mission of Alts and BTC is, in my opinion.

Funny thing is that existing "De-Fi" apps are embracing centralized stablecoins with open arms. I'm talking about USDC, USDT, and the likes. This is the first step towards the infiltration of the corrupt banking system into crypto/Blockchain tech. Developers may have opened the doors for governments to move away "De-Fi" from its true principles. If adding centralized stablecoins was nothing, imagine integrating KYC into "decentralized apps". It would be the end of an era for privacy and freedom.

People are only focusing on making money instead of what matters most. I guess it's too late, especially with "Wall Street" onboard. A dark future for Web 3.0 lies ahead. We should be ready for the worst.

OP, this idea will not scale through because decentralization is core value and purpose of crypto, so that no one will be full in charge or control of the system, so if the two monetary system is been merged, don't you think that purpose for the creation of crypto is being conquered, it will be better for system to function separately in other not to give room for government interference or control of crypto, let's continue to exchange our crypto to our traditional currency which is obtainable anything apart that is centralization which will not be a good part for crypto.

Regulations were designed to protect investors at the expense of more government control/outreach over a particular asset class (in this case, crypto). "De-Fi" doesn't need to be regulated by the government, especially when it's not bound to a single jurisdiction. Crypto is the same, but the fact that it can be traded for other currencies, opens the door for governments to enforce regulations (especially on centralized exchanges).

"De-Fi" apps, on the other hand, don't have any Fiat on/off ramps. They only use crypto for everything from borrowing to lending and staking. Those that have a Fiat on/off ramp are not truly-decentralized. Why make matters worse by forcing developers to modify existing "De-Fi" platforms to abide with KYC/AML laws? If successful, we would have something called "CeDeFi". It will move crypto away from its original principles. Is that the future we want for the industry?   

What ONDO stands for? I want to understand how it addresses the security concerns and transparency aspects to make the merger to be effective. Does it really have the potential role in achieving the integration?

What do you think are some other key factors to consider for a successful merger? Have you come across any other interesting projects besides ONDO that are tackling this challenge?

I think it will be difficult to combine because the basic concept is different, decentralization, namely freedom and not being tied to any party, but if there is something like that, and it is likely to be a better choice, then it will be accepted and implemented in society.

Decentralized finance needs to be regulated by the government to be effective. Therefore, although the restrictions related to it will not be as stringent as those of banks, it will be in the area of microfinance for the average and in the range of 10k USD, it can be integrated with central finance, but unfortunately, governments may not like the idea of being there. Greater freedom to circulate money, and therefore you may not agree to this financing, especially if the profits and control of the banks begin to decrease, but the integration between them may give better results for everyone looking for financing.

Even though the crypto market is controlled by governments, they still haven't been able to control the Blockchains underpinning most cryptocurrencies. We can thank their decentralized and censorship-resistant design for that. But this would be put in vain if we bring centralized powers into the Blockchains themselves. Or at least, into smart contracts. By making hybrid financial apps (centralized + decentralized), we will also be giving governments the ability to inflitrate crypto at is core and destroy it.

Why the idea of merging traditional finance into "De-Fi"? Wasn't the whole point of crypto to eliminate the middleman? If developers do this, they will be making Web 3.0 no different than Web 2.0. Due to fear of being prosecuted by mainstream governments, it's most likely "De-Fi" will take the path of centralization in the long run. We could say "Wall Street" and banks have already won. It's a dark future for crypto/Blockchain tech. I'd bet Satoshi is extremely disappointed with crypto's current state. That's assuming he is still alive.

More or less, the crypto market is already controlled by the governments indirectly by heavy scrutinizing via centralized exchanges, linking identity via KYC documents, and imposing heavy taxes but at least the nature of cryptocurrency remains the same which is decentralized but with so called merging, combining we also let go of the decentralization as well which has no positive for the crypto's future.

Would not decentralized finance lose its core value by merging with traditional finance? Even though some people might be into this idea, i know for a fact that a lot of people would not feel comfortable participating with a supposedly decentralized finance but authorities have access to the system it might also just be too confusing to people decentralized finance is already confusing to others as it is but to merge centralized finance with it it begs the question of why not just make it entirely different or separate? Both has pros and cons but merging it would not attract more people, i believe

Using blockchain technology can give a business more transparency and trust as long as they can secure the smart contract that has been used in those dapps. It is not possible to run a decentralized financial system without a smart contract because the rules of decentralization is preset and cannot be altered by anyone. There is another concern about government regulation. The government probably won't allow decentralized finance due to the uncontrollable environment it will create for them.

Well its either you totally segregate it or completely merge it. People who want a safe haven do want it but some anonymous dont want to compromise since they dont feel it that being involved in bank might affect their agenda on decentralized space like being taxed iressponsibly due to massive profits on crypto or either this is the whole reason some dont want the mixture of it.

Why combine bring traditional finance into "De-Fi"? Isn't the whole purpose of crypto/Blockchain tech to eliminate the middleman? By doing such a move, we would be creating something called "CeDeFi" (Centralized/Decentralized Finance) which is a hybrid financial solution. I'd certainly wouldn't want to use something like that, especially when it'll abide with KYC/AML laws. More control/power for the government, and less freedom for the end user.

I think crypto is already starting to move away from its core principles. The vast majority of developers want to please the regulators and "Wall Street" just to avoid getting into trouble. Believe me, if Satoshi did that in the first place, Bitcoin would've been centralized already. I sure hope truly-decentralized projects stay true to their principles of freedom and privacy. As long as the community fights back, centralizing powers won't be able to stop the revolution. Just my thoughts

You should DYOR ONDO; it has it all – real-world assets, tradefi, DeFi, DAO, etc. It made news yesterday after being introduced on exchanges like Bitget. Personally, I'll be dollar-cost averaging into this for the long term because I believe in the project, and they've got top-notch backing from Coinbase, etc.

I am not following much of the new projects lately, but I will take a look into the project you mentioned and see what's new in it from the existing projects.

The problem with traditional finance is, profit driven business but defi is completely community driven model so merging both can be a hell lot of a job and with highest security possible it gets more difficult.

The reason I brought up the need for platforms with strong security and transparency is because of the "security concerns." If we want this merger to be successful, developers should focus on developing platforms that meet these criteria. Have you heard of ONDO? I'm still observing it, but It's one platform that could potentially fulfill these requirements, and if it lives up to expectations, it could be the key to achieving a seamless integration of traditional finance (trad-fi) and decentralized finance (defi).

DeFi platforms have security concerns that is why you can see tons of defi platforms hacks in all these year from this thread: DeFi hacks [history]

Traditional finance institutions are the direct competitors for defi so I don't know how both can be merged.

What potential outcomes and difficulties could arise from merging traditional and decentralized finance  using public blockchain technology as the underlying infrastructure?
 
Here are some of the possible implications or outcome when traditional finance and decentralised finance are merged together.

1. Financial Inclusion: It can provide access to financial services for the unbanked and underbanked.
2. Efficiency and Transparency: Blockchain enables faster transactions and reduces fraud through transparent records.
3. Regulatory Challenges: Balancing decentralized finance with existing regulations requires collaboration between stakeholders and regulators.
4. Scalability and Performance: Addressing limitations in public blockchains is necessary to handle increased transaction volume.
5. Security and Privacy: Robust security measures are needed to protect funds and data while finding a balance between transparency and privacy.
6. Interoperability and Standardization: Common standards are required for seamless integration across different platforms and systems.
7. Education and Adoption: Educating users, institutions, and regulators is crucial for successful implementation.

The above mentioned are some of the possible outcomes I could think of but for this to be achieved, I believe that institutional grade products must be created and by institutional- grade, I mean products that are built with security and transparency as it's major principle and not limited to being regulatory compliant.  Are there any projects currently championing this cause?