Opinion: Embracing Institutions is Crucial for Ensuring the Future Success of Defi

Disclaimer: The opinions expressed in this article are solely those of the author and do not represent the views and opinions of crypto.news’ editorial team.

Now that the crypto market has stabilized, many projects are aiming to bring traditional finance institutions into the blockchain world. From banks to asset managers and investment firms, the message from the crypto industry is clear: the door is open, come on in.

But why should these traditional finance institutions embrace new technologies? Fintech companies that deal with fiat currency are usually more agile in this regard, as demonstrated by PayPal’s foray into the stablecoin sphere. However, big banks and established financial institutions are typically slow to adopt technological innovations.

Considering this, it’s reasonable for crypto projects, especially decentralized finance (defi) projects, to question the effort required to gain acceptance from traditional finance. After all, the defi sector and the crypto industry as a whole still have many internal challenges to address. Is it worth the investment?

While certain aspects of decentralized infrastructure may not be ready for widespread integration with traditional finance, progress in the tech industry is not always linear. It’s understandable that big banks and asset management firms are cautious when it comes to embracing tech innovation. It’s a significant investment, and they want to ensure its success.

However, the reality is that tech development requires adaptation or risk being left behind, and the financial sector is no exception. As alternatives to traditional finance continue to emerge, institutions cannot ignore the need to adapt to new technology. While rapid change is expected to remain competitive, large industries will not jump on any tech bandwagon without first assessing its credibility.

When it comes to convincing institutions of crypto’s credibility, defi projects need to address the challenges they face with nuance. While regulation is a factor that defi projects have no control over, it hasn’t stopped institutions like JPMorgan from launching institutional defi offerings ahead of other legacy institutions. If JPMorgan can see the potential of combining defi protocols with the safeguards of the current finance industry, why can’t defi projects believe it?

Currently, many defi projects have an indifferent attitude towards aspects of their development that they can control. This mindset needs to shift for defi to make significant progress in both development and sustainable adoption, including by traditional financial institutions.

Traditional finance and defi can benefit from working together, despite the industry’s resistance to change. Overcoming this inertia is a challenge in itself.

It may be difficult to accept the need for a mindset change, but it is essential for defi to thrive. Many projects are working on ways to merge defi and traditional finance, but focusing on institutions provides a long-term goal for the industry to strive towards.

Defi projects have real-world functionality issues that need to be addressed before significant traditional finance players can adopt their products. This functionality also extends to decentralized autonomous organizations (DAOs), where improving usability is crucial for solving governance, management, and scalability issues.

Building reliable and battle-tested infrastructure is necessary to meet the scale requirements of traditional financial institutions. This is why large companies often use older technology, not because they can’t afford to upgrade or don’t like new services.

To tackle existential topics like DAO voter apathy, clear intentions and goals are necessary. Otherwise, decentralized projects and financial frameworks may feel like they’re going in circles.

Smaller defi projects may hesitate to cater their offerings to institutions out of fear of being outperformed by bigger players or failing to deliver the product. Shifting the mindset and focusing on smaller achievements that can scale upwards would be beneficial. Projects don’t have to revolutionize the world with each integration; solving one specific problem in traditional finance that highlights the benefits of blockchain would be a significant milestone.

Defi projects need to play their part in creating a world where regulated institutions can be part of the revolution. Otherwise, these institutions will do everything they can to obstruct progress.

Without a clear endgame, defi will become trapped in endless internal debates over minor improvements that few people outside the sector would notice. Instead, institutional adoption of traditional finance creates a meaningful trajectory for projects to work towards, building an attractive product ecosystem that solves real financial problems.

Read more: With the right tools, Solana can be the incubator for defi 2.0 | Opinion

Simon Schaber, Lead Builder at Spool DAO, has been involved in the crypto industry since the rise of Bitcoin in 2009. He has introduced digital assets to prominent financial institutions and corporations since the advent of Ethereum in 2014. As a seasoned entrepreneur, he remains realistic regardless of market conditions.