How the FTX collapse marks the start of a ‘migration’ to TradFi

The collapse of FTX will usher in a shift to more decentralised and specialised institutional-grade alternatives in the world of traditional finance.

That’s according to Coalition Greenwich, which said in a report about the crypto market in 2023:

“The FTX catastrophe is not the end of the market. On the contrary, we see this reckoning as the beginning of the market’s migration to institutional-grade infrastructure, along with the guardrails and regulatory clarity investors need to more fully commit to long-term involvement.”

Crypto investors have been spooked by the one-two punch of the FTX exchange debacle combined with this month’s crackdown from the Securities and Exchange Commission, which hobbled stablecoin issuer Paxos and crypto exchange Kraken. But Coalition Greenwich said the SEC’s “strong enforcement path” could actually drive adoption of regulated venues.

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Market participants polled by Coalition expect the majority of digital asset trading volumes to take place on both “fully decentralised and fully regulated destinations” within the next two years.

Coalition Greenwich said decentralised exchanges, such as Binance DEX, Curve or Uniswap, can offer “lower friction to onboard, a sometimes better UI/UX experience and a wider breadth of assets to trade, making them relatively attractive to institutions that seek liquidity in the present and outside of futures markets.”

High expectations for DEXs from market participants should not be seen as a lack of interest in regulated venues, Coalition Greenwich said.

Coalition Greenwich said that while investors favour a mix of exchange-traded products, physical ownership, and tokenised securities in the next two years, some will be limited by their investment mandate or by regulation. Exchange-traded products will offer the benefits of clearer regulation and standardised disclosures, Coalition said.

It’s worth noting Coalition Greenwich conducted its polls of market participants in July and August 2022, prior to FTX’s collapse – a sign that market participants believed these trends were already in place.