Good for crypto legitimacy but not ideals

For greater crypto adoption, we need traditional finance (TradFi) and decentralized finance (DeFi) to join forces in symbiotic harmony and together usher in a new era of financial development. This convergence is key to mass adoption, but requires more time and greater collaboration.

A glimmer of optimism has emerged against the backdrop of the current US hostility towards cryptocurrencies. PayPal made history by becoming the first major US-based payment processor to launch a stablecoin pegged to the US dollar called PayPal USD (PYUSD). The involvement of a major global payments service marks a pivotal moment for the cryptocurrency industry as it brings a new level of trust to the often turbulent crypto landscape.

However, it is important to exercise caution and recognize that the full impact of PayPal’s entry into the crypto space will only be realized once several key components fall into place.

In its current form, PYUSD can only be used in PayPal’s own ecosystem, limiting its strength as a stablecoin. For PYUSD to be a well-rounded product, it must be transient between Web2 and Web3 and work across multiple blockchains. To achieve this, PYUSD must also be listed on centrally supported exchanges and decentralized exchanges. This gives PYUSD the liquidity it needs to support use cases across centralized exchanges, decentralized exchanges, DeFi protocols and blockchains, unlocking its true potential.

Therefore, while PayPal’s Web3 project is certainly notable, it represents only a small victory in the larger battle to legitimize cryptocurrency as a globally recognized and regulated industry. This is another case of isolated progress that highlights the many bridges that exist between TradFi and DeFi must be defeated before convergence can be completed.

Merging TradFi and DeFi

Bridging the gap between TradFi and DeFi will take time and collaboration, leveraging the different strengths of each sector.

TradFi institutions offer more robust risk management strategies than DeFi protocols and inherently provide a heightened security and credibility environment, making them attractive options for individuals who remain cautious about using digital assets. DeFi’s innovation offers users greater transparency and autonomy and can reach audiences that have historically been excluded from financial systems.

As traditional financial firms dive into the crypto world, the difficulty of finding a balance between the stability sought by traditional users and the innovation and autonomy of the crypto market is still a major problem for the crypto ecosystem.

This is where PayPal’s tradition of innovation and consistency comes into play. PYUSD provides a safer entry point for non-native crypto investors and benefits from PayPal’s reputation for stability, security and regulatory compliance. However, the highly centralized nature also brings its own hurdles. Those without a bank account still cannot access PYUSD or Web3 as PayPal requires users to have a bank account. Even if PayPal offers this service outside of America, we have to wonder how effective it will be, considering that developing countries do not use this service on a large scale.

PYUSD could therefore continue to benefit from DeFi’s autonomy, while DeFi can also benefit greatly from PYUSD’s existing network. If we can build a complementary relationship between Web2 and Web3 and TradFi and DeFi that combines credibility, innovation and accessibility, we have the potential to boost the global economy and drive institutional adoption of digital assets.

Transition from Web2 to Web3

Paypal’s stablecoin launch is one of many notable, if isolated, developments involving financial companies in 2023. Recently, many financial leaders have expressed their increasing interest in the crypto industry. Jacobi, for example, was the first to list its spot Bitcoin exchange-traded fund in Europe. Visa is actively testing paying gas fees in fiat currency using a credit or debit card. Furthermore, since the Shanghai Upgrade, institutional participation in liquid staking has even tripled.

While these developments are helping to change the reputation of crypto assets from purely risky ventures to credible investment options, they remain isolated developments as they have yet to enable a seamless transition between Web2 and Web3. For example, PayPal’s US customer base can only access PYUSD through Venmo, providing only banked Americans with another option to transact using a digital representation of the US dollar.

Why TradFi and DeFi shouldn’t be silos

A major obstacle to mass adoption of cryptocurrencies is that cryptocurrencies can seem intimidating to the average person because they are fraught with complex jargon and intricacies. This is where traditional financial institutions and Web2 technology could play a crucial role by simplifying information and making it more accessible to a wider audience.

However, relying on the traditional financial sector to operate in isolation from the DeFi ecosystem to attract new users carries high risks. Traditional finance has limited potential to reach all segments of the population, especially those who are underfunded, as profit motives can lead to marginalized communities being neglected. This is where the synergy of TradFi and DeFi becomes crucial. DeFi offers transparency, autonomy and accessibility in contrast to the often opaque and exclusive nature of TradFi.

What it takes for convergence to happen

The convergence currently consists of several lines in the sand that are slowly moving towards each other. Bringing these lines together will be key to mass crypto adoption, but getting there will take time and collaboration.

Certain factors are required for mass adoption. There is continued momentum within the crypto ecosystem, characterized by continued innovation and regulatory advancements. Notably, several countries, including Singapore, Hong Kong and France, have shown commendable commitment to refining regulatory frameworks, thereby creating a more growth-friendly environment.

We have seen progress in the evolving landscape of central bank digital currencies. This path has facilitated collaboration between blockchain companies and central banks and led to research into optimized trade settlements across economies, such as using the digital yuan for direct trade settlements.

Additionally, tokenization of real assets has the potential to change market dynamics, as demonstrated by successful real estate trials in Hong Kong and JPMorgan conducting the first DeFi transaction for the central bank of Singapore. Tokenization trends have emerged primarily in Asia, with countries such as Thailand, Hong Kong, Singapore and Japan establishing proactive regulatory frameworks to encourage the expansion and adoption of tokenization.

Still, more is needed for comprehensive development and macro conditions play a crucial role in facilitating the market turnaround. For example, current high interest rates discourage institutional investment in cryptocurrencies because they offer investors lower returns than bonds. As inflation falls to more reasonable levels and governments lower interest rates, we will see greater institutional participation in cryptocurrencies.

The underlying skepticism of the mainstream audience towards blockchain cannot be ignored either. While mainstream pushes have made progress, their impact remains localized.

DeFi and TradFi have their own advantages, and if they are brought together, we could open a new chapter in the global economy.


TaraSubramaniam is a Dailynationtoday U.S. News Reporter based in London. His focus is on U.S. politics and the environment. He has covered climate change extensively, as well as healthcare and crime. TaraSubramaniam joined Dailynationtoday in 2023 from the Daily Express and previously worked for Chemist and Druggist and the Jewish Chronicle. He is a graduate of Cambridge University. Languages: English. You can get in touch with me by emailing:

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