Voice of the Industry

The convergence between crypto and traditional financial markets

Thursday 29 February 2024 08:29 CET | Editor: Alin Popa | Voice of the industry

Bruno Diniz, Managing Partner at Spiralem, discusses the rapid global adoption of blockchain solutions, bridging the gap between traditional finance and crypto-assets.


Institutions worldwide are accelerating the development of blockchain-based solutions, causing one of the biggest transformations of our time.

For years, there has been a significant distance between traditional financial institutions and everything related to crypto-assets. The lack of understanding by financial sector professionals about this universe, combined with the absence of clear regulation in many parts of the world, made the term ‘crypto’ a major taboo in banks and other companies that make up the financial ecosystem.

Subsequently, only the term ‘Blockchain’ was prevalent, but always in contexts where the tokens themselves were not the focus. This was the phase where many players, when asked if they studied or considered using crypto assets in their institutions, would say: ‘Blockchain yes, Bitcoin no’.

However, there have been advancements in terms of understanding by institutions and some regulators about this subject, leading to the development of a new infrastructure and market operating model initially proposed by Bitcoin. This evolution transformed into a set of elements that are now integrating into the traditional financial market, in a process that has been called convergence.

Today, banks worldwide are creating areas related to crypto assets, aiming at structuring, issuing, trading, and custody of digital assets, as well as the tokenisation of real-world assets and financial products. Moreover, topics such as NFTs, Web3, and DeFi (decentralised finance) are being discussed in innovation and product development areas, and all the innovation, cost reduction, increased customer engagement, and agility brought by this new reality are beginning to be considered and explored.

Among some of the elements that have helped in this advancement – besides the greater level of maturity reached by the crypto ecosystem over the years – we have the emergence of friendly regulations in different parts of the world, the expansion of specialised service providers (such as tokenisation platforms and companies offering crypto-as-a-service), the proliferation of hybrid solutions (which have components of decentralised finance and traditional mechanisms), and the development of CBDCs (central bank digital currencies) worldwide.

Catalysts for change

Starting with regulation, we see the development of guidelines or recommendations for the application of laws dealing with crypto assets in the financial sector, the creation of supervisory structures – either by incorporating this role into an existing body or creating a specific one for this purpose – training of staff in these topics, and the use of technologies and tools that allow for the measurement and supervision of new activities. Countries like Brazil, Malta, and Switzerland are among those that have approached the topic in a friendly manner. On the other hand, China, Venezuela, and the US are on the opposite end of the spectrum, either prohibiting or not providing clarity on how institutions within this ecosystem should (or should not) operate.

The providers that assist in the integration process between these two worlds are also important catalysts for this change. Starting with the tokenisation platforms, specialised in converting everything from real assets (like real estate, and art, among others) and financial products (such as bonds, stocks, and many others) into tokens traded on blockchains. Some benefits of this movement include fractionation of ownership, cost reduction by removing intermediaries, increased liquidity (both through fractionation and the possibility of being traded in a global, borderless market), faster transaction speeds, increased security, greater transparency, insertion in a programmable environment, among other possibilities that are emerging in a constantly evolving environment like the crypto ecosystem.

Providers of crypto-as-a-service perform an activity that conceptually resembles the provision of traditional financial infrastructure by companies operating in Banking-as-a-Service – typically involving a pay-per-use service model, usually based on the volume consumed. The main similarity is that, in both cases, digital platforms and API integrations (programming interfaces) are used to accelerate the delivery of a certain financial capacity to a company – being a significant shortcut in this journey. In Brazil, companies like Nubank, Mercado Pago, and 99pay use the assistance of such providers to enable solutions for buying and selling crypto assets on their platforms.

Among the hybrid solutions, we see those where the user experience resembles what we have in the current market, but the internal processes use new technologies like DeFi (decentralised finance). Examples in Brazil include fintechs like Credix and Cloudwalk, which manage to combine the best of both worlds (the UX of the traditional environment and the reduction of intermediaries and global scale of the crypto world).

Finally, we see CBDCs as an infrastructure component provided by central banks that adds ‘programmability’ to the economy. CBDCs (especially in the case of Brazil, like the Digital Real) have great potential to contribute to this. In Brazil, this innovation will promote an orderly transition conducted by the local Central Bank towards a tokenised reality, bringing more assets into blockchain structures – fostering the activity of agents participating in the crypto economy while opening connections with the vast environment of Web3.

We are halfway there

Change processes usually take time, but nowadays, every minute counts. No player can afford not to experiment, test, and optimise their businesses in the face of this reality. There are significant opportunities in the transition, and it is necessary, as it represents a relevant update in the context of business conducted in the financial market. The parallel can be drawn to when the market inevitably had to move towards enabling new operations, automation, and interfaces as the internet gained relevance and user adoption.

Just like the advancement of the internet, those institutions that move quickly will be able to improve their learning curve and benefit greatly from it before others, while managing the reconfiguration  of revenues and potential cannibalism of some business units entrenched in the old way of making money in certain markets.

It is crucial to understand this movement and the different elements that compose this new reality – which will transform not only the financial market but the entire society – before it's too late.

This article was originally published in The Paypers` Global Payments and Fintech Trends Report 2024. The report compiles insights and expertise from leaders representing companies across the financial services spectrum and it delves into the latest innovations and trends in payments and fintech across key markets worldwide.


About Bruno Diniz

Bruno Diniz is a Managing Partner at Spiralem and Professor at the University of Sao Paulo (USP). Regarded as one of the top fintech influencers in LATAM, Mr. Diniz is also a speaker, and author of the bestselling books ‘The Fintech Phenomenon’, ‘The New Financial Logic’, and ‘The Age of Crypto Economy’.



About Spiralem

Spiralem is a consultancy firm focused on innovation for the financial market, events production, lectures, and training. We advise national and international organisations, helping them solve the challenges presented by an ever-changing financial sector.

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Keywords: blockchain, CBDC, crypto asset, digital assets, digitalisation
Categories: DeFi & Crypto & Web3
Companies: Spiralem
Countries: World
This article is part of category

DeFi & Crypto & Web3


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