Traditional finance (TradFi) faces skepticism regarding decentralized finance (DeFi) until it can present itself as a manageable risk. Despite interest from TradFi institutions in crypto and DeFi, their involvement remains minimal due to regulatory uncertainties and the inherent volatility of digital assets. DeFi has emerged as an affordable alternative to traditional banking, especially following financial distrust stemming from recent bankruptcies. Institutions recognize the potential benefits of engaging with DeFi, such as efficiency and new revenue streams, but need clearer compliance frameworks. Although DeFi has made some compliance efforts, it must continue to improve its regulatory standing through measures like KYC and risk management strategies. Innovations like decentralized identity solutions may help DeFi demonstrate maturity and appeal to TradFi's safety and compliance standards. Financial institutions' greater participation in this space hinges on DeFi’s ability to clean its regulatory house and minimize risks, transforming perceptions from liability to opportunity.

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