10 practices crypto can borrow from TradFi to better protect customers

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Crypto pioneers and decentralized finance companies often talk about their commitment to opening financial opportunities to underserved populations, but that’s only half the battle to succeed in this fledgling industry. Global consumers need to be confident that the funds they invest with crypto companies are safe, secure, and accessible for withdrawal whenever they want.

While traditional financial companies may not offer all of the new and unique opportunities and potential of DeFi, what they value is a long history and established methods of protecting consumer investments and maintaining their confidence. Below, 10 members of the Cointelegraph Innovation Circle discuss some useful things the crypto industry can learn from the TradFi industry, including practices DeFi businesses should consider adopting and adapting to their own. customer base.

Setting up an insurance system

DeFi companies don’t have the FDIC insurance that TradFi companies have, but that shouldn’t stop us from creating our own. Functional insurance systems that use smart contracts to automatically issue payments to relevant parties are the best way to ensure safety and security. TradFi benefits from a bureaucratic system to achieve this; we can do the same thing, and much faster, using decentralized systems. White Budd, Tacen

Educate consumers on the essential facts

Before investing in cryptocurrency, it is very important that the consumer 1) agrees to manage their own money in a decentralized world, as opposed to the centralized world of financial institutions; 2) researched reputable wallets and exchanges before sending them crypto or cash; and above all 3) knows this truth: not your keys, not your room. Educating consumers about these facts is essential in the decentralized world of finance. Chris Groshong, CoinStructure, Inc.

Implement best practices from day one

An ounce of prevention is better than cure. A key lesson from traditional finance is that by the time something unexpected happens, it’s usually far too late to start implementing best practices. With this in mind, Web3 companies must prioritize regulatory compliance and protecting user funds from day one. Wolfgang Rckerl, ENT Technologies AG

Create and follow regulatory guidelines

The crypto industry should look to traditional financial institutions to understand how they protect funds through regulatory oversight and compliance. These traditional institutions adhere to strict rules, guidelines and regulations. The cryptocurrency industry might seek to implement similar guidelines while keeping the spirit of DeFi. Théo Sastre-Garau, NFToirée

Put safeguards in place to reassure the public

Good insurance is something that would be very useful in centralized finance (to guard against theft and abuse) and even in DeFi (to guard against hacks and exploits). If we could effectively solve crypto and fiat customer funds assurance, it would put many people and institutions at ease. Brian D. Evans, ReBlock Ventures

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Ensure client assets are not inappropriately mixed

The security of customer funds is both a cybersecurity issue and an accounting issue. It is essential to have appropriate mechanisms in place to ensure that no client assets are commingled in a manner inconsistent with a custodial mandate. Also, it is essential to understand that only banks are designed to operate with fractional reserves. Crypto managers need to learn the differences between the nature of their businesses and TradFi organizations. Carlos Gomez, Belobaba Crypto Fund

Establish safety nets to protect against bad actors

One of the main differences between TradFi and DeFi is the lack of safety nets in the latter. Where banks and brokerage firms benefit from FDIC and SIPC services respectively, crypto companies and users remain vulnerable to bad actors. Although cryptographic custody is unique, for the industry to be on par with legacy systems, such protections must be considered for all participants. Oleksandr Lutskevych, CEX.IO

Broaden access and focus on user experience

In TradFi, user funds are generally secure and easy to access; crypto has struggled to find that balance. The safest way for users to engage with crypto is through DeFi solutions, as opposed to CeFi, but the barriers to entry are high. To keep customer funds safe, we need to make DeFi more accessible and improve the user experience and interface. Anthony Georgiades, Pastel Network

Imposing consequences for fraud

Don’t let bad actors off the hook. There are already many laws in place that deal with the mixing of funds, risk disclosure and various forms of financial fraud. Enforcing these laws will at least reduce crimes that happen in daylight, like those that happened with FTX and SBF. TradFi showed us that consequences are necessary for moderation. Arie Trouw, XYO

Not resisting financial controls

Traditional financial controls are there for a reason, and they emerged because of historical events. The college dorm and anti-establishment mentalities about money need to go. Zain Jaffer, Zain Ventures

This article was published by Cointelegraph Innovation Circle, an vetted organization of senior executives and blockchain technology industry experts who are building the future through the power of connections, collaboration and thought leadership. The opinions expressed do not necessarily reflect those of Cointelegraph.

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