Addressing the fiat-to-crypto disconnect between TradFi and DeFi

Crypto exchanges still struggle with fiat-to-crypto onboarding. Learn why crypto pay-ins fail, what TradFi and DeFi misunderstand about each other, and how smarter payment infrastructure helps.

TradFi and DeFi still don’t connect, and it’s slowing crypto down

Crypto is fast, decentralised, and global. But the moment a user tries to move money from their bank into a crypto wallet, everything slows down.

The disconnect between traditional finance (TradFi) and decentralised finance (DeFi) is more than philosophical, it’s operational. It’s costing crypto exchanges real users, revenue, and reputation.

For crypto to become mainstream, onboarding needs to be seamless. Yet today, fiat to crypto pay-ins remain a major bottleneck. From blocked card payments to rejected bank transfers, users frequently encounter friction before they even buy their first token.

Why fiat-to-crypto pay-ins still break

Crypto may run on borderless networks, but onboarding often relies on legacy financial systems. When users attempt to pay in with fiat, they’re often met with failed transactions, security flags, or unclear rejections, especially when using a bank account or credit card.

For many, the question becomes: “Why won’t my bank let me buy crypto?” or “Why is my payment to the exchange not going through?”

It’s not always user error. Banks and financial institutions frequently block payments to crypto platforms out of regulatory caution. Even if a crypto exchange is fully compliant, traditional banking rails often aren’t designed to support real-time, cross-border crypto flows.

This results in abandoned transactions, lost users, and a significant trust gap.

TradFi risk models don’t map to DeFi

One of the core issues is that TradFi and DeFi evaluate trust differently. In TradFi, compliance is managed centrally, through banks, regulators, and financial institutions. In DeFi, it’s baked into the code via transparent, open-source smart contracts.

To banks, the lack of a central authority in crypto ecosystems makes compliance harder to validate. As a result, crypto pay-ins are often flagged as high risk, even when there’s no evidence of fraud.

This leaves exchanges stuck in the middle, trying to manage user expectations, failed transactions, and regulatory complexity all at once.

Why user experience breaks at the first step

The irony? Many crypto platforms invest heavily in trading features, security, and customer acquisition, but users never make it past the first deposit.

Card payments fail. Bank transfers bounce. KYC checks stall without clear reason. Without reliable infrastructure for fiat to crypto onboarding, exchanges risk losing users before they even get started.

These breakdowns are particularly damaging in growth markets, where users may only have one chance to convert. If their crypto pay-in fails, they may never try again, and word spreads fast.

The case for crypto-native payment infrastructure

To fix the problem, crypto exchanges need payment infrastructure that understands both worlds: the compliance-heavy demands of TradFi and the technical expectations of DeFi.

This is where a crypto PSP (payment service provider) becomes essential. Unlike legacy banks or generic payment gateways, a crypto PSP is purpose-built to support digital asset platforms.

By managing local fiat rails, compliance workflows, and transaction transparency, crypto PSPs enable exchanges to:

• Accept local bank transfers and cards with fewer blocks
• Speed up onboarding with pre-verified flows
• Reduce transaction failures and user drop-off
• Expand into new markets without needing a local banking license

In other words, they make it possible to connect TradFi funding to DeFi platforms, at scale and with confidence.

A smoother path from fiat to crypto

The future of finance isn’t just DeFi or TradFi, it’s the ability to move between them easily. Crypto exchanges that streamline fiat onboarding will earn greater trust, reduce churn, and scale faster in competitive markets.

And users will stop asking, “Why can’t I buy crypto with my bank account?” — because the process will just work.