The Future of Finance breakdown 3(b): Hybrid Applications
This week we continue building the reference architecture across both TradFi and DeFi, with section 3(b) that describes Hybrid Applications.
Hybrid apps & digital wallets
Hybrid trading platforms and custodial services
Here’s another refresher on the landscape that we see playing out, keying in on where we will focus in this post:
Figure 1: the future of finance shows that hybrid apps, digital wallets, trading platforms and custodians are supporting both TradFi and DeFi
… and the following image shows a view of the respective vendors and projects building out the Hybrid Applications of the future:
Figure 2: some of the major players in Hybrid Applications are mostly centered on FinTechs and digital natives that have expanded to DeFi
Hybrid Application component 1: Hybrid apps & digital wallets.
Hybrid apps and digital wallets refers to a number of largely FinTech incumbent vendors that have decided to expand their offerings from traditional financial and payments services to also include hybrid services for both TradFi and DeFi, generally starting with custody and trading of cryptocurrencies.
Bakkt. A greenfield, digital-native app and wallet that spans both TradFi and DeFi services, Bakkt enables custody of both fiat and cryptocurrency, as well as loyalty payments with partners via loyalty points, cryptocurrency or cash. The Bakkt concept intends to provide a ubiquitous, unique experience across TradFi and DeFi and connecting each ecosystem’s diverse brands and customers. You can buy Bitcoin on the same app that aggregates your Loyalty points with your Marriott, Starbucks, Amtrak, and other popular Rewards accounts.
Some of Bakkt’s TradFi partners include MasterCard, Fiserv, and Global Payments.
PayPal. PayPal provides a number of Personal, Business and Enterprise services largely centered around, and founded upon, online money movement, payments and e-commerce services for online vendors.
Recently, PayPal expanded to include a crypto wallet across many of its global markets. PayPal is also working closely with MetaMask, the popular non-custodial DeFi wallet for Ethereum-based transactions.
SoFi is also a digital native FinTech platform that provides a variety of lending, investing, and banking products and services to retail customers.
Hybrid Application component 2: Hybrid trading & custody.
Hybrid trading and custody refers to services that allow you to both buy, sell and trade TradFi and DeFi assets, as well as providing custodial services for those assets.
Fidelity Digital Assets. The well known investment and wealth management platform started a digital assets and cryptocurrency group, and most notably has expanded 401k investors access to include cryptocurrencies.
Fidelity Digital Assets also provides a digital asset custody and trading platform built for institutions, with the intent to maximize security and capital efficiency with one, integrated platform.
Per the above section, Robinhood, PayPal, and SoFi all also provide trading and custodial services for cryptocurrency.
One key distinction to note with these trading and custodial services are that they typically only offer trading and custody (“buy, hold, sell”) functionality at this time, rather than the ability to transfer to other external wallets and exchanges the way most Web3 and crypto-native offerings can. To be competitive, and offer a bridge into the Web3 world, these offerings will need to be able to access DeFi protocols, other Web3 dApps and services, and table stakes capabilities like asset transfer.
Another key distinction to note is that the vast majority of these FinTechs seem to offer TradFi services and assets (e.g. fiat currencies), as well as DeFi assets (e.g. cryptocurrencies), but not stablecoins.
Finally, while many Hybrid players do offer custodial services and wallets, unlike TradFi assets, DeFi assets are not subject to FDIC and SIPC coverage, as noted on each website (example, SoFi Crypto splash page).
Additionally, Western Union has filed trademark applications recently that may suggest it is expanding beyond remittances and its core business into similar services. The activities covered by the applications include managing wallets, exchanging digital assets and commodities derivatives, issuing tokens of value, and brokerage and insurance services.
