TradFi Takes on Crypto: Exploring the Clash of Old and New in the Financial World

22 June 2023

Welcome, and thank you for being part of the MyZucoins community! Dive into our daily crypto, finance and tech news summary to stay in the know.

As the battle between traditional finance (TradFi) and crypto continues, recent developments suggest that major players in the financial industry are diving headfirst into the world of blockchain, undeterred by the perceived risks and challenges. While accusations of a government crackdown on crypto persist, with allegations of Operation Choke Point 2.0 denying the industry access to banking services, influential figures from asset manager BlackRock to market maker Citadel Securities are making bold moves.

The attraction of blockchain technology for established corporations is not new. Since Satoshi Nakamoto's groundbreaking Bitcoin white paper, major companies have recognized the advantages of the distributed ledger. However, what has changed is the heightened regulatory scrutiny from state and federal agencies. While the Securities and Exchange Commission (SEC) has intervened in the past, such as during the 2017 initial coin offering (ICO) boom, the government's recent focus on compliance has intensified following FTX's collapse.

Amidst the crackdown, traditional financial firms seem unfazed. They are accustomed to navigating regulations, unlike their crypto counterparts. BlackRock's filing for a Bitcoin exchange-traded fund (ETF) and Citadel's support for a new crypto exchange demonstrate their determination to enter the crypto space. These firms address the SEC's concerns by emphasizing market surveillance and segregating functions. BlackRock proposes Nasdaq overseeing pricing data, while EDX Markets separates exchange, brokerage, and clearinghouse roles.

If anything, traditional firms are using the current uncertain US crypto regulatory landscape to prop up their own offerings and commit to moving into the space more deeply. Quite possible, and this is just speculation, they could be using this opportunity to buy at a discount and then push their own offerings as the wider market recovers in coming times. The shifting landscape is undeniable: TradFi is embracing crypto and it's here to stay. The coexistence of government crackdowns and financial giants' interests highlights the complex dynamics shaping the future of blockchain and the financial industry. Read more here.

Scaling Up: The Next Chapter in Crypto Evolution

The crypto world is undergoing rapid advancements and innovation, revolutionizing traditional financial systems.

Let's take a closer look at some key areas hot in the media right now:

1: Layer 2 Scaling Solutions: Blockchain networks like Ethereum face challenges with scalability. Layer 2 scaling solutions address this issue by processing a large number of transactions off-chain or on secondary layers. These solutions improve transaction speed and reduce fees, making blockchain technology more accessible. One notable solution is optimistic rollups, which allow off-chain transactions with minimal on-chain verification, increasing throughput while maintaining security. These have their own issues, such as currently relying on a small number of layer 2 companies to manage this layer 2 stack of data, where much of it stays off the core layer 1 blockchain and only a smaller summary or subset of the data is sent back to the layer 1 blockchain. This means these layer 2 companies need to manage this other set of important data for some time. That's fine, so long as those companies don't go bust or become compromised.

2: Decentralized Finance (DeFi) Innovation: DeFi has transformed the traditional financial system using technology and smart contracts. It offers financial services without intermediaries, democratizing access to liquidity through automated market makers (AMMs). Yield farming and liquidity mining provide passive income, while synthetic assets and decentralized derivatives offer new opportunities for hedging and speculation. Decentralized governance models empower users to shape the future of DeFi protocols. The main concern here is that many DeFi exchanges in the world of crypto are not truly decentralized under the hood. Some up-and-coming exchange solutions and new protocols are being tested and refined to address this.

3: Non-Fungible Tokens (NFTs) Revolution: NFTs are unique tokens representing ownership of digital items. They establish digital ownership and authenticity using cryptographic technology. NFTs have empowered artists to earn money without intermediaries and allowed the tokenization of real-world assets, enabling fractional ownership and increased liquidity. This revolution has expanded financial inclusion and transparency.

4: Central Bank Digital Currencies (CBDCs): Governments worldwide are exploring the adoption of CBDCs to digitize fiat currencies. CBDCs combine the benefits of technology with the central bank's monetary policy. Countries like China, Sweden, and the Bahamas have initiated CBDC trials. CBDCs can simplify financial transactions and enhance accessibility for more people. These are not decentralized cryptocurrencies and are more comparable to the next evolution of digital fiat currencies that governments issue.

5: Interoperability and Cross-Chain Solutions: Achieving interoperability between different networks is crucial. Projects like Polkadot, Cosmos, and Chainlink are working on cross-chain solutions to facilitate the seamless transfer of assets and data. These advancements create interconnected ecosystems, allowing users to leverage the strengths of multiple networks. However, current popular cross-chain bridging solutions are exposed to all kinds of attack risks when transferring across chains, when certain techniques are precisely used.

These advancements in the crypto world are transforming finance, increasing financial inclusion for the unbanked and giving new opportunities for users worldwide as a digital-native currency. While these areas are interesting in their own ways, there is much work going on to solve their underlying issues. Read more here.

A Ground-Up Rethink Results in Splitchain

Unlike traditional blockchain technology that relies on temporary fixes, Splitchain, the core layer 1 underpinning the Zucoins token, aims to offer a ground-up alternative, providing a solid foundation for secure and efficient transactions.

Splitchain's protocol forms the core of the network, enabling real-time transaction settlement without the delays or bottlenecks commonly experienced in legacy transaction systems. With Splitchain, users can enjoy fast and reliable interactions and zero transaction fees, empowering them to participate in the digital economy easily.

A key highlight of Splitchain, amongst many, is their advanced built-in two-factor authentication, ensuring much more security for every transaction between two users of the network. This innovative feature adds an extra layer of protection, safeguarding users' assets and personal information from potential threats. Users need to not only get the wallet address right, but they also need to send the one-time temporary transaction code to the right person too. This drastically reduces the odds of sending items to the wrong person and currently, no other layer 1 cryptocurrency offers this.

What's more, Splitchain has all kinds of flexibility built into its system. It's designed to be adaptable and easily extendable by third-parties as needed, for their own specialized uses. This is a thoroughly different angle that most of the crypto industry is taking towards solving these issues.

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All the best,
Peter
MyZucoins

Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.