Crypto and TradFi: An Evolving Relationship

  • Posted: 28.09.22

If you spend any amount of time on Twitter, you’ll come away CONVINCED that crypto and traditional finance (or TradFi) are sworn enemies.

There are passionate people in both camps, and with most things on the internet, you feel like you have to pick a side.

BUT, they actually have more in common than you’d think.

For one, both are built on the idea of trust. In order for crypto to work, users must trust that the system will remain secure and that their transactions will be processed properly. Similarly, traditional financial institutions relies on trust between parties to function properly.

Another similarity is that both cryptocurrency and traditional financial institutions rely on network effects. The more people who use crypto or traditional finance, the more valuable it becomes. This is because crypto and traditional finance are both designed to make it easier to trade value between parties. The more people who use either system, the more useful it becomes.

Finally, both cryptocurrency, TradFi and DeFi are subject to regulation. In the case of crypto and the average crypto user, governments have been struggling for years trying to figure out how to regulate the technology. In some cases, this has led to bans on cryptocurrency trading (as in China). In other cases, it has resulted in heavy taxation (as in South Korea). TradFi, on the other hand, is heavily regulated by governments around the world. This regulation can take many different forms, but it typically includes things like licensing requirements and reporting requirements.

Despite these similarities, cryptocurrency (and digital assets in general) and TradFi remain very different beasts.

Crypto is a decentralized system that relies on digital assets to function. TradFi, on the other hand, is a centralized system that relies on fiat currencies.

This difference is key, as it means that crypto is not subject to the same restrictions as TradFi. For example, crypto can be used to trade value between parties without the need for a third party (such as a bank). This makes crypto much more versatile than TradFi.

The relationship between crypto and TradFi is still a relatively new one, and it remains to be seen how it will develop.

The Crypto Winter killed several crypto myths. Chief among them might have been the idea that TradFi and DeFi (or crypto in general) were mortal enemies. Are they destined, instead, to be best friends?

We wanted to take a closer look at what’s happening in the slow dance between crypto and TradFi.

Here’s what we found.

Decentralization might be dead (or dieing)

Cryptocurrency decentralization is the process by which digital assets are distributed among a network of users rather than being centrally controlled by a single entity.

This decentralization has several benefits, including improved security and increased resiliency. However, it also comes with some challenges, such as the need for users to have a certain level of technical expertise.

It’s safe to say that decentralization is one of the key selling points of digital assets.

By their very nature, crypto assets are designed to be decentralized. This means that they are not subject to the same restrictions as traditional fiat currencies, which are typically controlled by central banks.

The old adage for cryptocurrency was that decentralization would unlock a whole new world of financial possibilities. There’d be no centralized points of control, no institutions to bottleneck payments and transfers, and anonymity would be baked-in to the entire system.

That hasn’t exactly worked out. But why?

Let’s start with anonymity.

Yes, it’s true that my name doesn’t appear on any of my crypto wallets. But as the crypto economy and user base grows, and as big players continue to dominate, it’s increasingly easy to identify certain wallets.

That’s a two-edged sword.

On the one hand, it’s made tracking scammers and con artists a bit easier. The growing crypto security sector now features companies that focus on preventing fraud, as well as ones that track down fraudsters.

But it also means that anonymity on most blockchains isn’t quite as pervasive as it used to be.

It’s a big enough problem that privacy coins are a thing – a growing sector of specialist cryptocurrencies that do what bitcoin was supposed to do automatically.

That’s not a knock against bitcoin; it just highlights that as the industry matures, the general sense of anonymity and privacy has given way to the need for integration, scalability and growth.

TradFi has always LOVED the big players, and that seems to be creeping into crypto too:

There’s a rise of traditional finance style “blue chips”

There’s no two ways around it: Big players dominate TradFi.

You’ve got blue-chip stocks, industry giants, near-monopolies – TradFi loves giants.

And increasingly, so does crypto.

For all the talk of Ethereum-killers, Solana, Avalanche, and others still hold less than half of DeFi TVL between them. Ethereum has nearly 60% of total value locked-up on-chain.

And of course, Bitcoin itself is still the elephant in the room, with Ethereum coming second. The numbers drop off fast after the top two, with USDT, USDC, and BNB.

The point is, big players still dominate crypto in the same way that they dominate TradFi.

And that’s not necessarily a bad thing.

The rise of blue-chip cryptos brings with it increased legitimacy, stability, and confidence. Investors are more likely to put their money into an asset that has a large market cap and is less likely to experience wild swings in price.

In other words, parts of the crypto space is starting to look a lot like TradFi.

Of course, this centralization comes with its own set of challenges. The most obvious one is security.

The more centralized an asset is, the easier it is for bad actors to target. We’ve seen this time and time again in crypto, with high-profile hacks of exchanges, wallets, and even smart contracts.

The other challenge is censorship. When power is centralized, it becomes much easier to censor certain kinds of activity. We’ve seen this happen with crypto too, most notably with the 2017 fork of Bitcoin that led to Bitcoin Cash.

So, while crypto may be starting to look a lot like TradFi, it’s important to remember that there are still many key differences in the technology. And those differences will become more important as crypto matures.

In the meantime, it’s important to keep an eye on how crypto and TradFi are evolving. After all, they’re not really two separate industries anymore. They’re starting to look a lot more like one another.

BUT, it isn’t just cryptocurrencies and their price.

On the NFT side, BAYC and Cryptopunks are the blue-bloods, and founder Yuga Labs is the big name. And it’s getting bigger; you can read more about the Yuga Labs crypto empire here.

What’s the point? Decentralization isn’t as big a deal as it was cracked up to be, and like TradFi, crypto is dominated by big names and big companies.

TradFi tools are quietly making their way into crypto too:

TradFi Tools For Crypto Bros and their digital assets

The crypto sector is getting more sophisticated. That much is obvious, but what’s less obvious is how that sophistication pulls crypto and TradFi together.

Crypto data analytics have always been front-and-center in the crypto economy. From basic platforms like CoinMarketCap and DefiLlama

…these TradFi tools are designed to give crypto investors the same kind of data heavy information that traditional investors have. And that’s a good thing!

Because as crypto matures, it’s going to look at what TradFi has done right and wrong over the years.

We’re seeing crypto companies getting listed on traditional exchanges and crypto assets being used as collateral for loans. And as that convergence continues, we can expect to see more and more TradFi tools making their way into the crypto world.

We’ve also seen a growing number of more advanced tools too that an everyday user can access.

Dune lets you track individual projects with community-led stats, giving users the ability to create their own dashboards and customize stats for their own portfolios.

HodlIntel focuses on NFTs. Users can follow projects or wallets, searching trading patterns to detect emerging trends.

If these tools seem extremely high-end and market-focused, well, they are. We’re seeing more treatment of the crypto market as a market, with “investors” rather than just “users.”

And it isn’t just analytical tools. You can invest in crypto index funds modeled after traditional stock market index funds. And there’s been some fascinating reporting on the human side – it turns out that Wall Street traders and crypto bros aren’t so different after all.

What’s next? Predicting TradFi’s response to crypto’s growth

It’s becoming increasingly clear that as the years go by, TradFi is becoming less and less apposed to crypto. This isn’t David and Goliath; instead, TradFi and crypto are on course to be heads and tails of the same coin.

In the grand scheme of things, crypto is still in its early stages, and it’s undergone a lot of changes in a short amount of time. It’s been hard for TradFi to keep up, and as a result, there’s been a lot of scepticism from the traditional financial world.

But as crypto has matured, we’ve seen a gradual shift in attitude from TradFi. Where once crypto was seen as a threat, it’s now being viewed as an interest and opportunity.

There are a few key reasons for this change of heart:

1. The rise of institutional investors
2. The increasing regulation of crypto
3. The growing use of crypto as collateral

As crypto continues to grow and evolve, we expect to see TradFi become more and more involved.

You can see how this narrative has shifted in these seemingly-negative comments from big-wig Wall Street figures. There’s criticism – “most of crypto is still junk” – but the broader sentiment is interest, not opposition.

Tradfi wants crypto to succeed. It sees the relationship between the two markets as mutually reinforcing, not opposing. The growing number of experienced TradFi hands who have moved to crypto speaks to this point. One side feeds the other.

We’ve found that if the founders of web3 companies have previously worked in more traditional companies, they’re more understanding of the transferable skills that come with TradFi. Whereas a small start-up of 5 crypto natives are more likely to stay away from hiring people with traditional backgrounds.

Remember, crypto is typically seen as “anti big banks”, so hiring somebody with TradFi experience might be seen as a step in the wrong direction for some crypto native founders.

Web3 start-ups also have to consider the adaptability of the hires they make – when your team is only ~5 people, every person is crucial to the success. Web3 project founders might value the small team experience that comes with crypto experience vs huge teams that are associated with TradFi.

The crypto world is still young, and it has a lot to learn from TradFi.

But as crypto matures, we expect to see the two industries work more and more closely together. There’s a lot of potential for collaboration, and we’re already seeing crypto companies adopting TradFi tools and TradFi companies investing in crypto.


5 Tips For Investing In Crypto Projects

  • Posted: 14.09.22

In the middle of a crypto winter, is it really the best time to think about cryptocurrency investing and building your crypto assets?

Yes! In fact, there’s no better time to fine-tune your method for picking the perfect project.

Think about it:

When the market picks up, there’ll be a fresh wave of new projects and digital assets to choose from.

I’ve found cryptocurrency a good investment if you time it well (which is easier than it sounds).

You need to know “How can I start crypto investing?”

And these 5 tips will start you on the right path. I use these myself – and I’ve felt the pain when I didn’t.

Let’s get right into it:


1. Check out the founding team

When dealing with cryptocurrency investing, it’s important to start at the top.

Who’s on the founding team? This is a natural starting point to analyse new projects or digital assets. But you’ve got to go deeper than mere name recognition.

Instead of just checking how many followers the founding team has on Twitter, ask yourself these three questions:

1. Are the founders mature?

We’re not talking about their fondness for uni antics. What’s their depth in the field? Have they been around the block, or are they jumping head-first into an advanced DeFi project?

Not every good founder has a huge list of accomplishments, but previous projects can tell you a lot. Speaking of that…

2. What’s their track record?

It’s almost as important to look at failures as successes. Are you seeing low-floor NFT project after NFT project? Has the founding team bounced from project to project?

Is the founder Do Kwon?

Ok, bad example. But you get my point – what sort of track record do these people have?

Once you’ve answered those first two questions, here’s the final one:

3. What’s their expertise?

Again, you’re not just looking at expertise in crypto assets. That helps, but the field is still young – no founders are going to have a string of crypto successes over the course of a 20-year career in the space. Instead, look for expertise in other fields that could transfer to crypto.

Let’s take a look at Arthur and Kathleen Breitman, founders of Tezos, as a good example.

Are they mature? Arthur Breitman first posited the Tezos blockchain in 2014. The project didn’t launch until four years later. Now, the project sits at #38 in terms of market capitalization, and both Arthur (@ArthurB) and Kathleen (@breitwoman) are highly active on Twitter, continuing to post developments about the Tezos ecosystem.

Beyond that, they both offer genuine insights into crypto, digital assets and the space in general, not the WAGMI fluff you see from a lot of talking heads.

Check out Kathleen Breitman’s Fortune interview, and you’ll see what I mean.

Founders who plan long-term and stay involved are mature founders.

Track record and expertise? The success of Tezos over the past eight years speaks to the track record. But what about expertise? Interestingly, the idea for Tezos came about while Arthur Breitman worked as Vice President at Morgan Stanley. The Breitmans brought deep knowledge of financial systems, and of managing those systems, to Tezos.

Looking for a crypto winner? Check the project’s founding team. And don’t be afraid to go deep on what they bring to the table.

That’s step one to successfully invest in cryptocurrency. Once you’ve looked into the founding team, you need to:


2. Understand the value add/big idea/use case

Ask yourself: What does the project actually do?

Simple question, but the answer makes all the difference (and how quickly you arrive at that answer).

This is so important to making cryptocurrency a good investment.

Does the project have a clear use case? Is it workable now, or does it rely on future market developments before it becomes useful?

Let’s look at another real-world example:

One clear way to get a use case is to solve a problem. That’s how MakerDAO came about.

The problem: DeFi loans involve cryptocurrencies that make loan collateralization vary wildly; sufficient collateral today may not be enough tomorrow.

The solution (in part): To introduce a stablecoin, DAI, to the system.

The value-add: Organize the entire thing in a DAO – a decentralized, autonomous organization.

MakerDAO solved a current DeFi problem, giving it an instant use case. And the introduction of a stablecoin and a DAO added new elements to the project, setting it apart from other projects.

When I invest in cryptocurrency, that’s what I’m looking for in a new project. Nearly all successful projects will solve a problem with a clear use case.

All projects need their voice to be heard, and who they choose is critical to their brand:


3. Who is promoting the project?

Ah, the fun question.

Who’s promoting the project? What kind of marketing is involved? Is there genuine community involvement, or is everything pushed by a small handful of operators?

Twitter is notorious for this, with countless accounts shilling little-known altcoins (shitcoins) and low-end NFT projects. I find those projects easy to avoid, but it’s a bit more difficult when a project comes up with celebrity endorsements – Logan Paul, Paris Hilton, etc. They really can be very persuasive in getting you to invest in cryptocurrency.

Or maybe it’s not that hard, when the endorsement is Matt Damon for

Find and follow good influencers instead.

I like @Cobie, someone who isn’t afraid to call out bad actors and weak projects as well as highlight good ones (he called the Terra collapse, among other things).

I’m looking for voices that are reasonable, not cheerleaders who praise every project equally.

If it looks and feels like a big celebrity endorsement, be very careful.

You then have to be honest with yourself:


4. What’s your goal with the investment?

As an investor, are you looking for big yields fast, or playing the long game? Do you want steady returns with growth potential? Do you actually think you can make this cryptocurrency a good investment?

It’s important to match your goals with the project’s capabilities.

These last two ideas go hand-in-hand. You’ve got to know what you want from an investment in crypto assets, and then be careful not to get caught up in the hype.

I learned this the hard way.

When Apecoin launched, I got caught up in the hype at too much and jumped in without thinking. A disaster? No. Risky? Definitely. And what’s my goal with an Apecoin investment, anyways? Is that really a long-game play?

On the other hand, I invested in Filecoin after extensive research. There’s a clear use case (cloud storage backed with blockchain tech) and good support. It’s clearly a long-term project, and that fit with what I was looking for in my portfolio.

The final tip is the most important.


5. Ignore the above tips (hear me out)

“But Raf,” you might say, “All I did was bet big on Dogecoin, and it worked out great!”

Not much I can say to that. Even if you follow all of the above advice to a tee, there’s no guarantee it’ll work out (if it did I’d be a billionaire by now).

And on the flip side, memecoins like Dogecoin do occasionally work out. Doge doesn’t have a use case, the founding team is virtually unknown, and investor motivation is solely to make money. And yet, Doge is at least partially a crypto winner, with a devoted fanbase and a price that somehow avoids a complete collapse.

Dogecoin, Shiba Inu, and a host of other memecoins don’t disprove my advice. They just prove the exceptions – and you know what that means.

So if you want to be an expert at cryptocurrency investing, you need to: Deep-dive the founders, be sure there’s a use case, choose your influencers carefully, and understand your own motivation for investing.

Follow these four steps, and you’ll be on your way to picking a crypto winner.

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