DeFi vs. TradFi
Based on a legacy model where intermediaries such as brokers and custodians sit at the center of money management, traditional finance AKA TradFi has basically been the same since the industrial revolution. In more recent times, financial technology businesses have started to solve some of the industry’s inefficiencies via novel digitized centralized finance (CeFi) frameworks, but still, the uneasy alliance of centralization and profit-driven systems which can encourage manipulation and limited access has endured. However, a coming together of innovative blockchain technology and decentralization is set to solve many of TradFi’s negative influences by delivering intermediary-free financial products and the applications that power them at scale.
Welcome to the rapidly growing world of DeFi (decentralised finance). Accessible to anyone, anywhere who has an internet connection, the DeFi ecosystem is free of banks and brokerages running the show, with a digital wallet all the access and ID required to engage in instantaneous, convenient, user-confirmed transactions. This streamlining of the transfer and payment process promises greater transparency and lower charges, although currently, ‘gas’ fees are higher than most would like as the space continues to evolve and work through its complexities. As with any new technology, there are challenges, such as (albeit rare) vulnerabilities affecting certain elements of the DeFi framework and no centralised entity responsible if anything goes awry for users. That said, with constant security and regulatory upgrading, and close to $300B of individual and institutional cryptocurrency assets already deployed into its protocols, it seems like mass mainstream adoption of DeFi is well underway. Are TradFi’s days numbered? Maybe.