How TradFi is validating cryptos long-held truths
The following is a guest post by Mauricio Di Bartolomeo, Co-founder and CSO at Ledn.
After years of dismissing the asset, Wall Street is finally recognising Bitcoins potential. At Bitcoin 2024 in Nashville, the air crackled not just with the usual enthusiasm, but with the unmistakable scent of vindication. As Donald Trump pledged allegiance to Bitcoin as a reserve asset and Cantor Fitzgerald talked through its plans for a sizable $2 billion Bitcoin financing facility, it became crystal clear: traditional finance is no longer just dipping its toes into digital assets; it is diving headfirst. Our industrys long-held thesis is playing out before our eyes.
An industry could not dream of a better endorsement. For years, we have been labeled as fringe, as a bubble, as a passing fad. We have been mocked, and vilified by the very institutions now scrambling to get a piece of the action. It is not just validation; it is a full-scale capitulation of the old system to the inevitable future of finance.
This validation, however, requires an evolution. The digital asset industry needs to offer both the risk management expertise of traditional finance and the independence ethos of crypto. We have seen this movie before TradFi players entering the crypto space with deep pockets but shallow understanding, and crypto-native firms stumbling as they try to offer traditional financial products. The strongest operators are those who can blend the best of both worlds.
Building Bridges, Not Walls
Back in 2018, my co-founder (Adam Reeds) and I found ourselves in a predicament familiar to many early Bitcoin adopters: why should Bitcoiners have to sell their precious assets to access liquidity? This simple question led us down the rabbit hole of Bitcoin-backed lending, a concept that seemed obvious to us but was met with skepticism by traditional finance. Hence, we started building a solution to our own problem a way to borrow against Bitcoin without relinquishing ownership. Six years and over $860 million in loans later, our vision has been vindicated by the very institutions that once dismissed us as lunatics.
It is fair to say that traditional finance players have been lending for many decades, and have robust risk-management practices. However, it is equally true that most traditional finance players have little to no experience with digital assets.
While they may have substantial capital and well-established risk management practices, they lack the operational expertise specific to Bitcoin & digital assets. Understanding the new challenges of blockchain technology, managing digital wallets, navigating the 24/7 nature of crypto markets, and grasping the unique regulatory landscape of digital assets are all crucial skills that many TradFi institutions are still in the process of developing.
This knowledge gap highlights the importance of collaboration between traditional finance and Bitcoin-native firms. By combining TradFis robust risk management practices with Bitcoins transparency, and the technical expertise of crypto specialists, we can create safer, more efficient lending platforms that serve the needs of both institutional and retail clients in this market.
We embraced this early in our journey, bringing on TradFi expertise when we brought on our Chief Investment Officer, John Glover. His decades of experience at TD Securities and Barclays have been invaluable in shaping our risk management strategies and lending practices, and his deep understanding of traditional financial markets has helped us bridge between the established TradiFi world and the emerging digital asset ecosystem.
The events that brought down the likes of Celsius and BlockFi showed us that even the strongest and most connected players can succumb to careless risk management. These firms were taking shortcuts and operating irresponsibly, prioritizing quick gains, (often for their own personal benefit), ahead of the long-term integrity of their business and the safety of client assets. Said differently, traditional finance players just getting into Bitcoin and crypto product offerings face similar risks to those crypto and Bitcoin-native firms faced when they were getting into TradFi-like products, such as yield and loans.
That is precisely why the entry of institutional players like Cantor Fitzgerald is a watershed moment. This influx of institutional capital will drive down costs for borrowers, increase market liquidity, and enhance the credibility of the entire sector.
Now The Real Work Begins
We must not forget that the best operators in this space will always be those who can marry TradFis robust risk management practices with Bitcoins commitment to transparency and sovereignty.
For investors and borrowers, due diligence is just as critical as ever. Look for platforms that prioritize transparency, verifiable proof of reserves, and offer clear insights into how they manage assets. Seek out providers with a proven track record of reliability across multiple market cycles. Consider the legal structure of the lending platform, ensuring that your assets are protected through measures like ring-fenced risk and custodial services.
We could not be more excited to see traditional finance waking up to Bitcoin as the worlds best loan collateral. This was very much part of our long-term thesis, and we believe it will help drive down the cost of loans for bitcoiners as institutions bid down the cost of funding. Competition will also force players to continuously improve the client experience and lead to more adoption, more understanding, and more liquidity.
The future looks orange, indeed. And for those whove long believed in the power of Bitcoin as a reserve asset, it has never looked brighter.
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