New Trading Opportunities For TradFi In DeFi

The global crypto market has reached a capitalization of $900 billion and numerous institutional investors are looking to take it higher.

While there are various risks of trying any investment vehicle that has just recently come into existence, investors don’t have the same approach for crypto. In fact, they’re looking for all possible avenues to get started.

Some of these methods include venture capitalists funding DeFi protocols to give them a source of liquidity.

And this doesn’t even include the newer forms of trading, which comprise exchange traded funds and crypto derivatives, which are preferred by both institutional and retail investors.

DeFi Could Generate $1 Trillion by 2025

According to financial analysts, DeFi offers new opportunities for investors to generate value that were previously not accessible to them in TradFi.

Research shows that institutional DeFi could accumulate up to $1 trillion by 2025. Experts also predict that at such a point, there will no longer be a distinction between DeFi and TradFi – it will all be considered finance.

New Opportunities for DeFi

The biggest obstacle that traditional financial institutions have to cross to start participating in DeFi is to understand that the inbuilt systems of a protocol are based on laws of demand and supply.

Consequently, DeFi assets hold a market price. And wherever trading is involved, investors stand to gain. As Ethereum has finally shifted from the proof-of-work standard model to the proof-of-stake model, it has introduced various investors to the Ethereum staking.

This could be among the best ways for institutional investor funds to enter the market. A report from this summer by JPMorgan calculated that the crypto staking industry is set to accumulate $40 billion within the next few years.

Crypto Staking Could Become Billion-Dollar Industry by 2025

Crypto staking involves the user giving up a part of their crypto assets as collateral for a specific period of time to support the network. By doing so, they get crypto rewards.

At the moment, however, most of the validator rewards are being paid out to projects, firms, and people who have mastered the concept of maximal extractable value.

It involves using unique strategies to earn the most fees through transactions that a validator will combine into a block to add to a chain. Just about anyone can act as a block-builder by practicing maximal extractable value.

Moreover, there is even certain software that’s used by many Ethereum validators to generate easy returns. Based on data by Pintail, transaction validators using the software by Fleshbot are gaining median returns of about 6.1 percent.

Institutional investors can also act as liquidity providers to decentralized exchanges as well as lending protocols. Most decentralized exchanges rely on the automated market maker model when pricing tokens. This way, buyers and sellers constantly have a platform to transact.

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