Brokers Turn to Centralised Finance for Institutional DeFi Returns

During times of volatility and uncertainty Bitcoin continues to outperform all other major asset classes making the wider crypto market increasingly hard to ignore by institutions looking for portfolio diversification. Once the outsider of traditional finance the sentiment around digital assets is turning in favour of crypto with recent reports showing that most institutions have already invested or are planning to invest in cryptocurrency.

The crypto market was largely developed around retail with security and regulation challenges playing catch-up while brokers pre-empt the requirements of professional investors looking for returns without the costly burden of complexity in maintaining access to the digital asset market. While the freedoms of the decentralised space continue to innovate, centralised finance infrastructure is bridging the gap between these two distinctly separate worlds for institutional players.

Centralised exchanges such as Kraken and Gemini have provided investors a place to buy and hold a small range of coins enabling CeFi platforms to work with regulators and banks introducing centralised controls such as KYC ramps. And while CeFi exchanges continue to develop new services, such as lending and borrowing, decentralised exchanges like Uniswap and SushiSwap offer unique DeFi protocols for users to earn a return on their crypto.

Brokers are leveraging CeFi to convert their fiat using regulated ramps and are able to lend on DeFi platforms by locking crypto into smart contracts acting as liquidity pools. These locked in crypto deposits are made available to borrowers with lenders earning APY interest on loans. Borrowed tokens can be then used for margin trading. While there are online communities of users, DEX platforms are unsupported on-chain technology, and are available to brokers to provide a managed CeFi layer to help professional investors manage risk and earn additional profit using DeFi protocols.

While KYC and AML compliant CeFi infrastructure can go some way to regulating participants as they use fiat to enter and cash out from a centralised exchange, it’s more of a challenge to account for DeFi counterparties who may have arrived from unregulated platforms. The liquidity that institutional investment is bringing to DeFi is making it possible to seamlessly install centralised controls so that liquidity pools can be monitored while smart contracts automate the entire lending process.

Institutional investment is leveraging the best of CeFi infrastructure to access and use the incredible efficiency of DeFi smart contracts now a proven source of returns.

As well as compliant access, brokers play a vital role in educating those in traditional finance, many of whom already own digital assets and are using CeFi products. Decentralised exchanges have grown around leading crypto pioneers and the blockchain developer community and DEX platforms tend not to have intuitive user interfaces for those less experienced. From compliance to technical integration to investment opportunities and customer support, reducing the complexity of the DeFi opportunity can be more easily achieved by brokers with the right CeFi infrastructure and tools that are now on offer.

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Centralised finance infrastructure is bridging the gap between these two distinctly separate worlds for institutional players.

(c) 2022 City A.M., source Newspaper

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