Crypto-Friendly Banks Are Coming, But Do They Have Real Solutions?

PayPal PYPL, MasterCard MA, Unionbank – all these major players have already announced cryptocurrency products. However, it remains to be seen if CeFi institutions can ensure a seamless crypto-fiat flow and successfully compete with more agile crypto-native platforms that support multiple fiat systems.

DeFi has just 2% of PayPal’s users because of high entry barriers – and many banks are ready to capitalize on the opportunity

In 2021, crypto made a huge step towards becoming a truly interoperable space. Thanks to a growing number of bridges, money can flow between chains like Polygon MATIC/USD, Avalanche AVAX/USD, Solana SOL/USD, Fantom FTM/USD, BSC, etc. - all with minimal fees. Once you’re in, you can easily deposit and withdraw crypto in DeFi protocols and Play2Earn games, swap, buy NFTs, and much else.

If DeFi provides such a seamless way to manage your money, why are there still so few DeFi users? Dune Analytics recently put their number on Ethereum ETH/USD at 4 million,  and the rest of the chains have probably no more than that combined. 8 million is just 2% of PayPal’s 370+ million users – so you can see how huge the usage gap still is between CeFi and crypto.

The problem is the high barrier of entry: for someone who’s only ever used fiat, buying cryptocurrency for the first time is complicated and often involves high fees and security concerns.

Meanwhile, CeFi institutions show two different responses to the issue:

• Fear: avoid anything related to Bitcoin BTC/USD and stress crypto’s risks – essentially try to make the entry barrier higher.
• Opportunity: offer their clients an easier way to get exposure to cryptocurrency – basically remove the entry barrier and gain a competitive edge.
• Why CeFi platforms’ crypto offerings remain so limited

  In the past few months, we’ve seen many examples of CeFi businesses cautiously introducing crypto-related products. This led some to proclaim that banks and payment systems are ‘embracing’ crypto. However, it’s important to note how limited most of these initiatives are:

• PayPal allows users to ‘buy’ Bitcoin and ETH, store it on the balance, and pay for purchases with it – but you can’t transfer any crypto assets to an external blockchain wallet, connect to any dApps, etc.
• Avenue Securities (backed by SoftBank) will soon enable Bitcoin trading – but there is no talk of supporting tokens, and it’s unlikely that customers will be able to withdraw BTC from the platform.
• Philippines’ Unionbank will offer crypto trading and custodial services – but, just like with the other examples, the range of supported assets will be small.

Custody and exposure – these are the crypto-related services that banks and other fiat platforms are looking at. In other words, don’t expect them to integrate token swaps or DeFi bridges into their apps anytime soon. Indeed, in a world where even multi currency fiat cards are still a rarity, asking for fully functional multi currency crypto-fiat accounts would be naive.

for multi currency fiat accounts to become a thing, there will be a significant need for new infrastructure - especially in areas such as risk management and compliance. The process of setting up multi-currency crypto-fiat accounts is even more complex as developers will need to build proper risk hedging mechanisms.

for now, it’s impossible for banks to build these structures. and, even if they could, they would end up incurring costs for maintenance and scalability. These costs would then be passed to the end consumers, increasing the fees for crypto-fiat swaps and transactions.

For now, it is important to encourage and adopt platforms that focus on offering these crypto-fiat accounts. One such name is Exscudo - a FinTap wallet with a built-in secure messenger that accepts over 60 fiat and crypto assets. Exscudo already integrated 10 payment systems, allowing users to deposit the dollar, Euro, and Ruble using different payment channels - such as PayPal, SEPA, and Mastercard.

Improving the seamlessness of crypto-fiat transactions is a critical part of boosting digital asset adoption itself. projects that are focusing on this field have themselves locked in a battle to unlock a multibillion dollar industry.

There are many platforms that look to eliminate the crypto-fiat divide, including Coinbase, CoinJar, Crypto.com, Wirex, etc. If Exscudo’s forecast is correct, it will be these kinds of projects – crypto card issuers, crypto banks, fiat on-off ramps etc. - that will take the lead in the technological race against CeFi.

To the end user, it doesn’t really matter if crypto-native or CeFi-native companies will win this race to destroy the entry barriers to the blockchain space. What matters is that the two dimensions will finally merge into one, making it as easy to enter DeFi or Play2Earn as it is to pay with a card for a purchase.