Disrupting Traditions: How DeFi is Changing Traditional Banking

Decentralized finance (DeFi) refers to an alternate finance system that uses public blockchain technology for performing all kinds of financial activities. The core purpose of DeFi is to offer a viable alternative solution to the centralized middleman-focused legacy system.

DeFi is the key driver of disruption for blockchain technology. It has not only created better alternatives to traditional financial practices but also innovated newer financial concepts like synthetic assets. Its growth is at a very fast pace, the industry has reached $100 billion and its users are over a million now, which shows people’s motivation and enthusiasm to participate in such a system.

The traditional financial system is set for parties to rely on intermediaries like banks, brokers, and other financial organizations for financial structures. Due to this situation, centralized entities have complete control over the entire financial system, making these issues act as buffers that impact the transaction speed and cost leading to dissatisfaction among the parties in the financial system.?

The introduction of the first-generation blockchain with cryptocurrencies showed the possibility of an alternate financial infrastructure. With blockchain technology, people could transact without any third party, acting as the validating agent. However, Ethereum is the pioneer that introduced the world to the DeFi.

The Ethereum blockchain ecosystem introduced the world with newer technological tools, such as digital assets, smart contracts, and dApps. All of these tools became the core components of decentralized finance projects.?

Time for a Pivot in a System Adverse to Change

About 1.7 billion adults are still unbanked and many financial experts are pointing fingers at the complications in the current baking system. Furthermore, the lack of transparency influences the judgment of the people regarding the legacy model. DeFi technology projects are offering newer solutions that could attract the unbanked population of the world. At the same time, the top DeFi projects are removing the system buffers, bringing transparency, and improving the transaction speed and cost.

With such a surge in popularity, adoption rate, and market trends; there is the question, will DeFi be the new banking? I can show key points to explain how DeFi is disrupting the change adverse industry of banking.

Accessibility?

Decentralized Finance offers users simplified and easier access to banking services. It also removes barriers by eliminating the need to share personal information before accessing services.

With the traditional banking system, a person in need of a loan would have to go through a bureaucratic process and waste a lot of time, however, in the case of DeFi, such operations require only several clicks and are accessible from anywhere and at any time. This approach not only makes the process seamless but also affordable, giving users full control of their assets, adding a lot of value to what could be a cumbersome process.

Transparency

DeFi is powered by blockchain technology, and all transaction data is transparent and available to everyone. The auditable nature of DeFi allows parties to properly assess risks and inspect portfolios

Therefore, DeFi’s open source infrastructure is always available for audit, with every transaction recorded on the blockchain. This not only serves as an important foundation for financial markets but also plays an essential role for investors. By understanding what types of transactions are taking place, DeFi provides its users with a high level of trust, a sense of security, and authenticity.

Exchange??

DeFi simplifies the exchange process as it involves peer-to-peer transactions without the need for a middleman. DeFi platforms are equipped with machine learning algorithms that help detect fraud and identify other risk factors.

With the help of smart contracts, and analysis on loan sources and credit levels, DeFi platforms speed up the exchange and lending process between two parties. That’s why DeFi exchange and lending is one of the fastest-growing use cases in the industry.

Innovation

Decentralized finance is one of the most innovative industries. Built on blockchain technology, DeFi solutions are innovative by nature. However, in addition to that, the industry is constantly looking to expand its capabilities and offerings with innovative solutions.

Usability and Growth Opportunities

Exactly such groundbreaking thinking made DeFi a perfect use case for doing everything from lending to insurance. And as decentralized finance becomes more attractive to large investors and businesses, we are more likely to see more innovative and complex uses of this space.

The number of projects with DeFi technologies is increasing and although one of the biggest challenges of this is the skepticism of new users due to lack of information to adopt these new solutions, market trends suggest that DeFi is here to stay and make a significant change to traditional banking, we will undoubtedly see exponential growth in the next 5 years for this industry.

DeFi has not only offered viable alternatives but also innovated newer markets and trading opportunities. Moreover, DeFi can outmatch legacy systems and technologies in every possible way.