Stablecoins, asset tokenization, and decentralized exchanges (DEXs) are the focus of TradFi.

Written by: Paradigm Policy Team

Translated by: Deep Tide TechFlow

We surveyed 300 traditional finance (TradFi) practitioners across various institutions, positions, and regions. The results were nearly unanimous: the current financial system hinders economic growth and leads to resource waste due to inefficiencies. The problem is urgent, and the cost of inaction is higher. Many view decentralized finance (DeFi) as a solution—a way to cut redundancies and unlock real value. Our survey report clearly indicates that DeFi is not just an alternative option; it is the future direction of traditional finance, and it all starts with policies that support its development.

The full report can be accessed here.

Finding 1: More than two-thirds of traditional finance companies are focusing on DeFi

The existing technological infrastructure and systems used in traditional finance are labor-intensive and require significant manual operations. As a result, many TradFi companies are beginning to explore cutting-edge technologies, actively seeking ways to reduce costs, improve risk management, and enhance operational efficiency through technology. Cryptocurrency technology is increasingly being integrated into their strategies:

• TradFi companies view DeFi as key to solving operational efficiency issues.
• Nearly 90% of companies are investing in or researching how to leverage the advantages of public blockchains.

Traditional finance is proactively embracing self-disruption, as they are well aware of the significant benefits that transitioning to DeFi-driven infrastructure will bring.

Finding 2: DeFi will become an important component of traditional finance's core business

Data clearly indicates that TradFi believes DeFi will ultimately play a crucial role in its core products and business lines. This perspective stems from the belief that DeFi can improve the financial system.

From initial skepticism to current acceptance, TradFi no longer views DeFi as limited to the cryptocurrency realm but sees it as an inevitable trend and a significant opportunity.

Finding 3: Traditional finance refuses to see private blockchains as substitutes for public permissionless blockchains

Last year, our research showed that central banks are gradually moving away from proprietary blockchains and focusing on open-source software and public networks. This survey further indicates that the majority of the TradFi community believes that public, permissionless blockchains are essential for the application of technologies such as smart contracts and asset tokenization.

Therefore, it is crucial to protect these systems and provide strong incentives for the development and maintenance of open public infrastructure.

Finding 4: Stablecoins, asset tokenization, and decentralized exchanges (DEXs) are the focus of TradFi

Stablecoins, asset tokenization, and decentralized exchanges are the areas of greatest interest to current TradFi, consistent with the growth trend in on-chain transaction volumes in these areas.

These three "pillars" are necessary conditions for accelerating market development, as they provide: (1) settlement assets; (2) a universal representation of assets; (3) composable protocols for on-chain financial transactions.

In the coming years, we expect growth in these areas to continue to rise.

Finding 5: The regulatory environment is the biggest obstacle to DeFi releasing economic efficiency in the short term, and policymakers face a generational opportunity for accelerated change.

Traditional finance (TradFi) has recognized that the development of decentralized finance (DeFi) is inevitable and represents a significant improvement over many existing financial systems. On this point, traditional finance and the cryptocurrency industry largely agree—the latter has been striving to protect the open system of DeFi to ensure that this innovation is not stifled before it fully matures. However, the main barrier preventing traditional finance from fully embracing cryptocurrency technology is not a lack of infrastructure or practicality, but rather the restrictions imposed by many banks and market regulators. These regulatory bodies have hindered traditional finance companies, banks, exchanges, and funds from entering the DeFi space, thereby slowing the pace of this integration.

Today, the era of cautious observation has ended. It has been four years since the "Summer of DeFi," during which we have experienced a series of global market events and turmoil in the cryptocurrency market, all of which have demonstrated the "anti-fragility" of DeFi. Now is the time for regulators to open the floodgates between traditional finance and DeFi, allowing traditional financial institutions to embrace the possibilities of this revolutionary technology.

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