Organizations and industry leaders from the traditional finance space are increasingly turning their attention to Web3. Many are wondering what the underlying technology could bring to their own efforts, as well as which of the many projects in the market are viable investments.

When taking their first exploratory forays into Web3 and decentralized finance, those with a TradFi background need to first get a grasp of the ecosystem’s basics so they know what to look for when digging down to the individual project level. Here, 10 members of Cointelegraph Innovation Circle discuss factors those in TradFi should keep in mind when researching Web3 projects, and why they’re important.

The trends and the tech behind blockchains

People from TradFi know the Web3 industry is in its infancy compared to traditional markets. There is a fair amount of speculation and volatility, which can be a curse and a blessing. Thorough research of trends and the tech behind blockchains is a must before surfing the waters of Web3. Once you get into it, you will realize the same principles run Web3 as traditional markets — on steroids. - Carmelia Ray, Kindly

Web3 tech’s potential for providing added features

TradFi has two business models: aggregator and intermediary. Web3 is at odds here. Web3 can coexist with TradFi when operating as a feature — for example, payment transfers, settlements and so on. Should TradFi organizations consider Web3 tech as a feature, they should look at the stability, scalability, interoperability, security, performance, extensibility, manageability and openness of the underlying technology. - Nitin Kumar, zblocks

The possibilities Web3 infrastructure opens up

TradFi needs to embrace DeFi. DeFi expands TradFi’s total addressable market to the world and enables TradFi organizations to reduce the cost of developing and delivering new financial products. Rather than having to invest in data centers or the cloud to build its business, a TradFi organization can leverage Web3 infrastructure. By failing to embrace Web3 and adapt their businesses to DeFi, TradFi organizations risk missing a paradigm shift in their business. - Shawn Douglass, Amberdata

Regulations and compliance

For Web3 systems to supplement and eventually replace TradFi, they will need to comply with regulations. TradFi systems also need to understand security in crypto. It's a paradigm shift from traditional security. The last thing you want is for TradFi ecosystems to be subjected to security exploits because you were promised high yields and you didn't do due diligence. - John Wingate, BankSocial

Crypto’s volatility

Many derivative platforms provide up to 100x leverage, so people from TradFi should use it very carefully. They should remember that the crypto market is much more volatile than the traditional markets. The changes in the price of cryptocurrencies are not merely in the 3% range — they can be as high as 30% or even more! - Dev Sharma, Blockwiz

Join the community where you can transform the future. Cointelegraph Innovation Circle brings blockchain technology leaders together to connect, collaborate and publish. Apply today

The lack of a universal framework for Web3 projects

While TradFi is centralized — and in many ways, standardized — Web3 is based on a vision of a global ecosystem shaped by the community, rather than by a few dominating companies. As such, people should “do their own research” on every Web3 platform, since there isn’t a single framework that can be universally applied to them. - Sandy Carter, Unstoppable Domains

The Layer 1 blockchain being used

If you’re in TradFi researching a Web3 project, step one is looking to see which Layer 1 blockchain the project is using. Each Layer 1 has different advantages and disadvantages when it comes to reliability, security, speed and decentralization, and it’s key for TradFi players to understand this. Don’t fall for a Web3 project built on a network that experiences regular outages or security flaws. - Molly Glennon, Ditto

Project economics

When researching Web3 projects, those in TradFi should remember to consider the economics of a project — and remember that it’s different from Web2 projects. Does the project have a token that’s used to subsidize usage, or is there real revenue being generated on-chain? TradFi should get comfortable looking at on-chain analytics and transactions. The chain doesn’t lie. - Gabe Frank, Arcade

A project’s value and unique selling proposition

When researching Web3 projects, those in the TradFi space should look behind the hype to find projects that will deliver real value and provide a unique offering — something different than what’s already out there. Blockchain technologies have the potential to massively transform industries. Web3 projects with clear roadmaps to their goal have a far better chance of achieving sustainability than the ones coasting by on fear of missing out. - Ayelet Noff, SlicedBrand

The problem a project solves

One of the more important things when researching Web3 projects is looking at sustainable utility: Is the project focused on adding value for consumers and users or solely inflating its own token and brand awareness? Essentially, has this project actually found a blockchain-based solution to a tangible problem — one in which the function is focused on technology over price? - Jae Yang, Tacen


This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.

Learn more about Cointelegraph Innovation Circle and see if you qualify to join.