Time to Think Strategically About Cryptocurrency and DeFi…Even if You Are Not a Fan
November 3, 2021
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3 minute read – Cryptocurrency and decentralized finance (DeFi) are gaining more attention every day, especially as there are more products and services that look and act like traditional banking services.
For perspective, consider the following:
- In October, the total value locked (TVL) in DeFi protocols crossed the $200 billion mark.
- There are over 20,000 crypto ATMs in the United States, including many inside Walmart. Consumers and businesses can earn credit card rewards in crypto. Some businesses are paying a portion of employee compensation in crypto.
- Cities in the United States, including Miami, San Francisco, Portsmouth, and New York are open to using crypto.
- Using DeFi, a borrower typically needs to provide collateral in the form of other crypto assets. That’s it. No credit checks, verifications of income, or any of the other requirements of traditional financial institutions. For a simple explanation, watch this video from Nexo.
Opinions are mixed on crypto and DeFi in general. On one side, you have critics like Warren Buffet who have called it “…rat poison squared.”
However, proponents tout: “While banks have office hours and observe holidays, DeFi never sleeps, whereas institutions use paperwork and committees to reach decisions, DeFi relies on algorithms.”
Regulators are also starting to focus more on crypto. They are evaluating how existing regulatory frameworks cover crypto and DeFi, and what changes are needed to provide protection.
Even though the crypto market enjoys a lack of regulation, it is still important for decision-makers of traditional financial institutions to consider how to best respond given their regulatory framework and unique business model and strategy.
One key strategic question to consider is – If current trends in cryptocurrency and DeFi continue, how can this help or hurt our strategic direction and business model in the next 24 months, 5 years, and beyond 5 years?
When mobile banking started to emerge, there were many leaders at the time who thought it was a fad. It is too soon to know if this fast-evolving trend is just a fad. However, the consequences of assuming it won’t impact financial institutions, and therefore not learning about it, can lead to unpleasant surprises.
For many, thinking strategically about crypto and DeFI will require a huge mindset shift. When thinking about it, try to focus on the value proposition DeFi offers.
Remember, DeFi proponents tout: “While banks have office hours and observe holidays, DeFi never sleeps. Whereas institutions use paperwork and committees to reach decisions, DeFi relies on algorithms.”
Thinking strategically does not mean you have to make sweeping changes to your strategy or business model. As you go through the process, it can be helpful to simply be open to the possibility of discovering incremental actions you could take now with your infrastructure and business practices.
And don’t forget, learning can be fun!
