In times of volatility and uncertainty, Bitcoin continues to outperform all other major asset classes, making the broader crypto market increasingly difficult to ignore for institutions looking for portfolio diversification. Once an outsider of traditional finance, the mood for digital assets is turning in favor of crypto. Recent reports show that most institutions have already invested in cryptocurrency or are planning to invest in cryptocurrency.
The crypto market has largely evolved around retail, with security and regulatory challenges catching up as brokers anticipate the needs of professional investors looking for returns without the costly burden of complexity in maintaining access to the digital asset market. While the freedoms of the decentralized space continue to innovate, the centralized financial infrastructure bridges the gap between these two distinctly separate worlds for institutional actors.
Centralized exchanges like Kraken and Gemini have offered investors the ability to buy and hold a small selection of coins, allowing CeFi platforms to work with regulators and banks enacting centralized controls like KYC ramps. And as CeFi exchanges continue to develop new services like lending and borrowing, decentralized exchanges like Uniswap and SushiSwap are offering unique DeFi protocols for users to earn a return on their crypto.
Brokers use CeFi to convert their fiat using regulated ramps and can lend on DeFi platforms by locking crypto into smart contracts that act as liquidity pools. These locked crypto deposits are made available to borrowers with lenders earning APY interest on loans. Borrowed tokens can then be used for margin trading. While there are online communities of users, DEX platforms are unsupported on-chain technology and are available for brokers to provide a managed CeFi layer to help professional investors manage risk and generate additional profit with DeFi protocols to achieve.
While the KYC and AML compliant CeFi infrastructure may partially regulate participants as they use fiat to participate and differentiate themselves from a centralized exchange, it is more challenging to accommodate DeFi counterparties that may differ from unregulated ones platforms have come. The liquidity that institutional investments bring to DeFi allows centralized controls to be installed seamlessly, allowing liquidity pools to be monitored, while smart contracts automate the entire lending process.
Institutional investments leverage the best CeFi infrastructure to access and leverage the incredible efficiencies of DeFi smart contracts, which are now a proven source of returns.
In addition to compliant access, brokers play an important role in educating individuals in traditional finance, many of whom already own digital assets and use CeFi products. Decentralized exchanges have grown around leading crypto pioneers, and the blockchain developer community and DEX platforms typically don’t have intuitive user interfaces for less experienced users. From compliance to technical integration to investment opportunities and customer support, reducing the complexity of the DeFi opportunity can be more easily achieved by brokers with the right CeFi infrastructure and tools now on offer.
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The centralized financial infrastructure bridges the gap between these two distinctly separate worlds for institutional actors.
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