That banks are bankrupt (morally if not financially, but probably both) is a received truth in crypto culture. The deep distrust stems, rightly or wrongly, from the Global Financial Crisis as well as a multitude of lapses and frauds, ranging from the LIBOR scandal to Enron, and aggravated by years of runaway profits, bonuses and a seemingly loose attitude towards social responsibility. 

Today, the “smartest guys in the room” think they have a decentralised fix to all that is wrong with finance and the people that run it. On the other side of the spectrum are these financial institutions that are inherently distrusting—of cryptocurrencies generally and Bitcoin specifically (“rat poison squared” according to Warren Buffett), as well as the fundamental concept of decentralisation itself, and any utopian-sounding talk around it.

At the risk of sitting on the fence, perhaps they are both right. 

Caution and cunning

Coming of age during a catastrophe—such as the Great Depression or The Global Financial Crisis—makes an indelible impression.

The generation of engineers and entrepreneurs building decentralised ecosystems today also would have experienced digitalisation’s power, as their own or their parents’ livelihoods were upended over the past 20 years. To be ‘Amazoned’ has become a verb in business lexicons for a very real reason. Being on the profitable side of that equation often means simply disrupting first.

Having suspicions about the traditional financial system and embracing digitalisation’s creative destruction is not a fault. But trusting any and every innovation over more established solutions certainly might be.

For example, the same hubris that sunk Enron could be at work with the recent Terra/LUNA collapse. Without missing a beat, the company behind the sunken stablecoin moved to relaunch it with little more than a new label, seemingly ignoring the problems that brought it down in the first place. That sort of disregard for reality is always dangerous, regardless of which side of the defi/tradfi fence one sits.

And that’s not to say that the energy-trading concept that Enron built its fraud upon was a bad idea at its core either. The idea may yet prove valuable as the world trades carbon credits while transitioning from fossil fuels to support a “net zero” world in the future.

Likewise, an algorithmic stablecoin, such as Terra/LUNA, may also be a solid idea. Why not encode free-market theory into an asset to drive its price? After all, isn’t market transparency part of what drives asset valuations? Automating what markets are supposed to do naturally with computer code might block disingenuous traders (like those from Enron, or banks in the case of LIBOR) from easily gaming the system 

Still, while the idea might have good roots, the Terra/LUNA execution didn’t work. Was that a genuine error or something more sinister? The problem with a still relatively nascent crypto culture is sometimes it can be hard to tell the difference. But when it comes to losing billions of dollars, distinctions between mistakes and scams aren’t comforting or even – dare I say it – material. A loss is a loss is a loss.

The truly unfortunate end of the Terra/LUNA fiasco is that it may serve as a deep and enduring fracture between traditional and decentralised finance when the greatest potential for the world at large is for the two “sides” to join forces against the human failings that got us all here in the first place.

In essence, both sides seek the same utopian values : stability and inclusion.

One bad defi shouldn’t spoil the barrel

When a leveraged hedge fund, Long-Term Capital Management, imploded in 1998, taking billions of investor dollars with it, the concepts of hedge funds and leverage were widely criticised, but both survived. Only people looking to score political points suggested banning either in the aftermath. Stablecoins, too, are a necessity. Love it or loathe it, digitalisation of money is here to stay.

Calling out the digital asset market as dangerous or potentially fraudulent not only misses the point, it’s irresponsible.

When institutional players say cryptocurrency is a Ponzi Scheme, they seem to forget the term’s origin in 20th Century traditional finance or that Bernie Madoff practically repeated the same scam almost 100 years later, bilking investors of billions with the air of “establishment capitalism” all around him.

Crypto culture didn’t invent scams; yet many people in it appear to believe they’re immune to the same problems, despite plenty of evidence to the contrary. Regular news of rug pulls, breath-taking volatility, and the problem with whales (large holders that might actually make Bitcoin anything but decentralised) does nothing to stop evangelisers from dismissing all red flags as FUD (fear, uncertainty and doubt).

FUD is then reinforced by a basic human concern of FOMO (fear of missing out) and the spiral is further aggravated.

But why should such basic human survival instincts be dismissed?

The problem with crypto culture is that anyone questioning the potential of Bitcoin to change the world, or the speculative asset’s “obvious” value, gets bullied out of the room. Yet, ironically, the real opportunity lies in answering these questions – in the same way that the legacy financial system and its operators need to question why they are so quick to dismiss digital financial services.

Crypto enthusiasts are right that traditional finance has lots of problems. And some of them can be readily solved with tools that decentralised finance has developed. But decentralised finance also has problems, as seen recently. Could solutions be found in existing traditional structures? Without a doubt.

As market valuations of cryptocurrencies follow equities and other risk assets down the bear market slide, it’s critical for crypto proponents to understand that gravity affects them too.

After decades of being left out of the mainstream financial system, they may have found their way in, even more than they dare recognise. The digital financial system, some would argue, has already become mainstream. While the future of finance is clearly digital, we now find ourselves struggling to develop constructive ways forward as opposing camps stick firmly to two seemingly distinct paths.

In fact, the best way to build stability and inclusion for the future is to build on time-tested foundations with the digital options and capabilities now available. Value is to be had on both sides of the fence. The sooner both sides accept this, the faster we can all move ahead on a common trajectory.

Bringing together the cultures of traditional and digital finance is not a matter of compromising ideals, it’s about integrating them.

Tokenization of assets and securities with a blockchain, and the unification of regulated securities and asset markets within decentralised protocols, hold significant promise for a more resilient financial system.

If both sides admit to the advantages of the other, as well as their own shortcomings, the next generation of finance will be solvent and sound—and culturally mature.