- Like TradFi, there should be regulatory bodies for crypto as well.
- As with TradFi, there is a need for safety nets in DeFi.
Crypto enthusiasts and regulators often talk about opening doors of opportunity for underserved people; however, they are only 50% there to achieve this goal. The safety and security of investors’ funds are of utmost importance, with an option for withdrawal as per their wish.
Traditional financial (TradFi) institutions may not offer new and innovative approaches toward finance and the benefits of decentralization, but they do offer a long-standing and trusted financial system that the majority of people are well aware of. Discussed below are some effective TradFi practices:
- Implementation of Robust Practices
It’s a famous saying that ‘prevention is better than cure’ and that’s what traditional finance educates about. By the time something unpreventable happens, it is too late for the implementation of robust practices to prevent it. Given this, Web3 regulators should prioritize the safety and security of user funds and their crypto assets.
- Formation of Regulatory Guidelines
The answer to how traditional financial institutions protect their customers’ interests is by adhering to strict rules, guidelines, and regulations. The crypto industry should take a page from TradFi’s playbook to understand how to safeguard user funds through robust compliance guidelines. The crypto industry should look for ways to achieve this while maintaining the spirit of DeFi.
- Making Customers Aware of Important Facts
There are some basic prerequisites before entering the world of cryptocurrencies that every interested individual must know. Firstly, they shouldn’t be reluctant to put their money into the decentralized space as opposed to the traditional finance or centralized finance space.
Secondly, they should do thorough research on which crypto wallet and exchange are best for them before participating in any crypto transaction. The last and most important point to remember is ‘not your keys, not your coin.’ These are some facts that every individual must know if they’re willing to enter the world of crypto.
- Putting up Safety Nets
The key difference between traditional finance and decentralized finance is the lack of safety nets in DeFi. Participants in TradFi, like banks, brokerage firms, etc., enjoy protection from the Federal Deposit Insurance Corporation (FDIC) and Securities Investors Protection Corporation (SIPC) services.
On the other hand, there are no such safety nets available for the crypto industry, which leaves it vulnerable to malevolent actors. It is already established that crypto custody is unique, so protection services should be given to all types of participants in the industry.
- Imposing Repercussions for Fraud
Many books on law enforcement already exist in our reality, related to finance and how those laws can be implemented. The only way to stop fraudsters from getting away with fraud is by enforcing these laws so that the reoccurrence of cases like FTX and SBF can be prevented. Like TradFi, the need to impose consequences is mandatory.
- Setting up Safeguards for Public Reassurance
Implementation of insurance protocols in both centralized finance, for protection from theft and misuse, and decentralized finance, for protection from hacks, can prove beneficial for both. Solving insurance issues for crypto and fiat clients can instill trust and keep individuals and institutions at ease.
