Traditional Financial (TradFi) services are reacting more than ever to their customers’ needs and demands, acknowledging that the growing adoption of crypto assets as an investment class, the simplification of digital currencies, and the complex and challenging landscape in which they function, both operationally and regulatory, make their ability to adapt and innovate critical to their survival.
Decentralized Finance (DeFi) is a new technology that has the potential to transform various industries, including the finance industry. The industries can greatly benefit from combining both services.
Let’s take the example of the banking sector. Banks increasingly recognize this industry as a key disruptor in their operating environment and as an opportunity. Most big banks now have departments and teams dedicated to bitcoin and digital asset strategy and development. The DeFi community should concentrate on finding methods to collaborate to integrate and educate.
Key differences between DeFi and TradFi
- The public and unchangeable blockchain serve as a decentralized trust source in DeFi. In the TradFi arena, legislative authorities and regulators, on the other hand, provide public governance, providing central points of control that might limit market access and raise the danger of manipulation.
- DeFi is by definition more open and transparent than traditional financial systems, lowering barriers to entry and potentially increasing trust between users and lenders. This guarantees that financial services are accessible to everyone, including small businesses and households with inadequate or non-existent credit records.
- The TradFi system’s highly regulated structure can make it difficult for innovators to participate fully. More precisely, before becoming a part of traditional finance systems, innovators and exchanges must secure required permits and accreditation from authorities, making it challenging to develop or produce solutions that benefit clients.
As can be seen, these distinctions show why DeFi benefits unbanked companies so much while also revealing how the technology might boost innovation in the traditional financial field.
These disparities, of course, pose a concern, especially when considering the lack of regulatory safeguards and how they might affect both lenders and borrowers.
Is DeFi considered better than TradFi?
One of the main reasons for the belief that DeFi would supplant traditional finance is because blockchain cryptography makes safe transactions more accessible, quicker, and more efficient. Overall, society will benefit from an upgraded and well-designed financial system. DeFi, for example, removes fees charged by banks and other financial organizations just for accessing their services. This enables individuals to have actual ownership of their money in a straightforward and permissionless manner. So, if you wanted to send money to a cousin in another country, it would be a simple and quick process. As a result, Traditional Finance stands in sharp contrast.
As a result, it’s evident that Crypto is paving the way for a more efficient financial system and a decentralized future. As a result, the global central banking system is under attack because nothing will ever be able to stop growth if a system develops exponentially. Money, according to someone, is only a means to riches, not wealth itself. As a result, it will be obsolete once something more efficient replaces it. For example, much like Google replaced Yahoo, Crypto will eventually replace money in our current society.
Ultimately, the Crypto metaverse will continue to grow and has already begun to shake traditional financial structures. DeFi is quickly establishing itself as a transparent and permissionless technology. In 2022, the value of assets in DeFi is predicted to increase rapidly.
Final thoughts: What the future beholds?
Lastly, history shows that a revolution consuming an existing ecosystem, such as Traditional Finance (TradFi), is exceptionally rare. Given that digital photography has nearly wiped out film stocks and corporations like Kodak, it’s possible, but it’s improbable.
TradFi and DeFi are almost certainly going to combine. TradFi offers trust, size, and regulatory approval, whereas DeFi brings innovation.
People feel that DeFi will see a lot more attention over time and that this is only the beginning. Others claim that when “TradFi gets on blockchain,” “true magic applications” will emerge.
Today’s sci-fi meets tomorrow’s reality as TradFi meets DeFi.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.