The panel discussion ‘Creating On-Ramps and Off-Ramps Between DeFi and Traditional Finance’ was a riveting discussion at Fintech Nexus Merge. It aimed to give the audience a snapshot of how the convergence between DeFi and TradFi will result in the mutually beneficial use of innovative technology to create accessibility while offering new products and users and accessing new markets.
The representatives on the panel included Nicole Pabello, managing director at Amber Group, Jessica Holzbach, CEO of Pile, Ken Timsit from Cronos, and James Tromans, Google. The panel was hosted and moderated by Daniel Lanyon, Editorial Director at AltFi.
The current state of play with DeFi ramps
The first part of the discussion included short updates from each panelist, who gave their insight into the current state of play with DeFi ramps. Among those outlined was an introduction to Cronos’ initiative by Timsit. Live since November 2021, Cronos is an EVM-compatible chain designed to support the Creator Economy with applications such as DeFi and GameFi, ultimately serving as a foundational infrastructure for the metaverse.
User adoption has surpassed expectations, with protocols of Cronos going from zero to $5 billion. “So we were looking at where those funds were coming from. And indeed, many of those funds were not coming from early adopters of crypto with mass, significant amounts of wealth. Most of the investments were coming from relatively mainstream users. And so we could see that the vast majority was entering crypto through a crypto exchange, custodial crypto exchanges… So from our vantage point, we’ve seen custodial exchanges as the main On-Ramps of the last bull market. And I think in the future, we’ll see neobanks and institutions take a bigger role in that effect.”
Pabello also talked about the state of play, including the growing interest in people wanting to get involved and the increased need to create accessible routes for diversification and onboarding. “Words are currency. So for us, our phones are our story to us or for us to get into diversifying assets. But then having that in crypto and bridging the traditional banks still plays a very important role until the client can get a better user experience.”
Custody
Holzbach concurred; she explained that getting involved can still be complicated. “I was just reading a few days ago, in Reddit forum threads, about the things that still suck. It gets so frustrating how difficult…it is so complicated that you must know so much to get into the game. And it’s also something that we observed because we want to help, and we’re actually the ones that innovated challenger banks the last couple of years to get onto this train. And most of them don’t know how. You’re also starting to face so many different providers. So I feel like it’s still super fragmented. It’s very hard to know everything. And the only answer I have learned is there’s still a lot of potential.”
Tromans presented some ideas on custody and its anticipation. In particular, he emphasized how custody has been discussed for a long time over the years. Although his product engineering and business are essential, he is not the first to attempt this. Essentially it comes down to the “right time and place to make it happen.” Practically speaking, there have been waves of efforts this year that can make it happen.
It was a facet that was emphasized further by Holzbach, who explored how we need to evolve on ramps. As she explained, end users face challenges completely independent of crypto technology, and there’s a small amount of traction on that. In other words, it’s an improvement, but it has to be iterated. In addition, logistics make it not always cost-effective to provide it to partners, especially for a young company that is at a growing stage.
Retail and institutional markets
Timsit also addressed the market question, outlining the importance of distinguishing the retail and institutional markets. “On the retail side, we see a lot of regulation, and at the same time, we’re also investing. So all this infrastructure is being built to provide a reliable entry point to users. Many companies have taken a web 2.5 approach with self-custody wallets, but so far, these have not had much activity because most people active in crypto have a lot of money. “
Tromans added, “one of the things in both cases, which gets a lot of regulation but related to that is identity, Know Your Customer(KYC ) and Anti Money Laundering (AML). And so, the idea between custodial and noncustodial wallets is interesting. I think many of them don’t necessarily have a deep understanding of what it means to have a private key. And, if given the options to have, maybe not, many people would like an option to be able to say; actually, I would just store that key in a trusted partner, right? Whether that’s an account provider or a new business that doesn’t yet exist to them, you want to own that for yourself… And so what we’re giving users, especially in the context of managing their finances, is that choice that they don’t currently have today.”
On the institutional side, Tromans focused on the growing need. He explained how corporations would participate in this in years to come because their employees want to be paid in a native token. “They’re going to be hedging that risk like any other local currency risk that they would hedge. And so there’s a lot of things that need to happen to bring that to life. It will be interesting to see what new products are being built together.”
Competition
Interestingly the rest of the panelists agreed. There was a sense of excitement when discussing the future possibilities because many applications are open source. Since the source code is open source, aggregations and yield farming can be seen as significant capabilities for new chains.
Tromans explained that this is important because many existing providers are looking for alternatives, and challenger banks are constantly looking to innovate and offer new products.
Timsit looks at the notion of competition through the lens of market share. “For background, On-Ramps represents a very small share of the industry’s revenue. And I think, if you look at the few actors in our space, I think on ramps, probably 5% of their revenue, compared with trading fees that represent the bulk of their revenue and other services. “
In concluding remarks, the panelist spoke about how traditional banks or financial institutions implement crypto products more efficiently and whether this was the key to mass adoption. Challenges still include brand awareness, education, and crypto’s reputation, or as Timsit put it, “traditional large banks still find crypto toxic.
