DeFi can breathe new life into traditional assets

In his monthly crypto tech column, Israeli serial entrepreneur Ariel Shapira covers emerging technologies within the crypto, decentralized finance and blockchain space, as well as their roles in shaping the economy of the 21st century.

Traditional finance experts are warming up to the idea of crypto, but outlandish headlines of record-breaking hacks and overhyped projects don’t necessarily reverse its bad rap. Unfortunately, we’ve seen the total value locked in decentralized finance (DeFi) recently nosedive, which isn’t exactly helpful in changing skeptic’s minds.

While crypto is much more than its lows, those in the centralized finance (CeFi) space aren’t necessarily jumping to accept this idea at face value. To alleviate their qualms, projects should integrate tried and true CeFi qualities with more novel practices. This will allow neophytes to dip their toes in the DeFi world as a trial run — and expand the usability of the financial instruments to a whole new level.

Picking up CeFi’s slack

Many worry about crypto’s volatility, specifically fearing that it is not backed by anything tangible like gold and believing that crypto will lose value over time. This likely comes from the comfort and familiarity of fiat, which technically isn’t backed by anything tangible either since the end of the gold standard, but has the backing of a trusted centralized entity.

These fears perfectly encapsulate how the cross section of DeFi’s and CeFi’s respective strengths can ease investor uncertainty to usher in a new class of people into the crypto sphere.

Tokenization of commodities enables blockchain-based ownership of a physical asset, which is essentially just a decentralized version of an already-existing practice in traditional finance. Tokenized precious metals are somewhat similar conceptually to a share in a gold exchange-traded fund (ETF), as they represent the investor’s stake in physical gold stored elsewhere and largely work toward the same purpose. Projects like VNX offer digital ownership of tokenized commodities that are backed by physical assets including gold, giving the investor the same benefits as investing in physical gold but have the versatility of a crypto asset on top of that.

The practical uses of DeFi are becoming more apparent to the mainstream, which is benefiting the crypto industry as a whole. As people experience the benefits of crypto first-hand, the bad rap will slowly but surely fade away.

The projects that mesh qualities of both traditional and decentralized finance give investors the luxury of easing their way into DeFi. Such products can lead DeFi down the path to full-blown adoption. Investors can dip their toes as they please without worrying about extreme market volatility and uncertainty.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ariel Shapira is a father, entrepreneur, speaker, cyclist and serves as founder and CEO of Social-Wisdom, a consulting agency working with Israeli startups and helping them to establish connections with international markets.