5 minute read
The Case for Bridging the Gap Between
ThE CaSE FOR BRiDgiNg ThE gaP BETWEEN TRaDFi aND DEFi
Republican or Democrat? Still or sparkling? Cats or Dogs? No matter how serious or insignificant the topic, society at large has historically fallen prey to the simplicity of polarization. It’s a tale as old as time that repeats itself over… and over… and over again.
Itake many issues with viewing the world strictly through a lens of binary choice, but the biggest one of all is the loss of much needed nuance. Polarizing takes are nothing more than first order thinking. It’s easy; the path of least resistance. Pick a camp, and stick around people who will reinforce what you’ve taught yourself to be true. It’s easier to stubbornly pick a side than it is to take a thoughtful and well researched approach. Polarizing takes are often the ones that get air time. They can be thoroughly entertaining. But that doesn’t make them accurate. In fact, the truth rarely lies in the extremes.
Given the current state of the world, we see this play out in nearly every aspect of life: people fight over the extremes when, in reality, the answer lies somewhere in the middle. Within financial services, the topic du jour is Crypto, and the crux of most arguments can be boiled down to one simple question: are you willing to embrace change and the inherent messiness that comes with it?
The history of the world is filled with countless examples of innovations put into place to make our lives easier. Faster. Cheaper. More efficient. Blockchain technology is, at its core, nothing more than the latest in a long line of technological advances brought about to improve the systems we use every day. BUT, what many people get wrong on the topic of crypto is that we can blaze a new path forward and leave legacy systems behind in the process.
The path forward cannot be paved without the cooperation of legacy incumbents. Change is uncomfortable, but market innovation doesn’t happen in a bubble, it happens for a reason: we’ve already started to see collaboration and targeted efforts by some of the largest firms in the financial
world. This was not done in haste. The Blackrocks and Fidelitys of the world see what I see: traditional
and decentralized finance weren’t designed to be mutually exclusive; the best of each system will come together to build a better future. Progress requires collaboration from both sides.
For traditional finance (TradFi) participants, collaboration means the following (and much more):
• Ensuring regulatory bodies get educated and have open dialogue with top builders in the space to blaze a path forward that encourages responsible innovation rather than stifles it (this is already happening!) • Looking at the financial system as it stands today, acknowledging its many flaws (inefficiencies, inequities, costs, and more), and thinking about how to solve or mitigate them. • Keeping an open mind and acknowledging the fact that innovation is always messy. There will be scams, things will break, and it won’t all last, but out of the chaos will come progress.
Traditional finance participants who truly care about the long term growth and prosperity of the financial services industry should root for innovations that are intended to improve the space.
For decentralized finance (DeFi) builders and leaders, collaboration means the following (and much more):
• Embracing the inevitable role of regulation in ensuring proper investor protections and implementation of guardrails put in place for the common good of all market participants • Not abusing the information asymmetries inherent with any up-and-coming technology for personal gain, and rather creating new solutions with long-term viability. • Willingness to learn from legacy financial participants - how can you improve a system without intimate knowledge of how the system works to begin with? • Chilling out on the over exuberant, maximalist attitude that so often deters newcomers from the space; patience, understanding, and education are necessary for onboarding the masses, and leaders in the space should wield the power they have for good. Crypto builders who truly care about the long term growth and prosperity of this nascent industry should take it upon themselves to help legacy firms cross the chasm.
TradFi participants who truly care about the long term growth and prosperity of the financial services industry should root for innovations that are intended to improve the space. It won’t be smooth sailing; we are in the early days of innovation and it will take many iterations to test and work out the kinks. DeFi builders who truly care about the long term growth and prosperity of this nascent industry should take it upon themselves to help legacy firms cross the chasm.
When it comes to onboarding the lion’s share of legacy financial participants, the most important component today is education. High quality content, from well versed crypto participants, written in a way that relates back to what traditional participants are familiar with (engineering jargon is intimidating and a huge barrier to entry - cut through it). TradFi participants need to be willing to listen with an open mind, and DeFi leaders need to be willing to put in the time and effort to teach. We can all learn from each other.
All of this is to say: there are choices, and the one you can make is to be progressive, innovate, and learn. Stagnation is death - sharks die if they stop swimming, why would you? As someone with a background in traditional asset management who has since made the transition to DeFi, I’ve made my choice and want to help others make educated choices as well.
My new podcast, the DeadCaitBounce Experience, was created with the sole purpose of helping TradFi onboard to DeFi. Listen in as I explore the relationships I’ve cultivated both in TradFi and DeFi, and how they can better compliment each other to come up with something bigger than the sum of their parts. At the end of the day, you don’t have to change your mind… just open it.
