DeFi - Redefining the Global Traditional Financial System
The Global Financial Sector is expected to grow $26.5Trillion by 2022 with a CAGR of 6%. This shows that the Financial Industry is an unfading and ever-growing sector of the globe.
Here in this article, we are about to look at the traditional finance and how this traditional finance can be modernized by the inheritance of DeFi- The Decentralized Finance, the new Financial system.
What is Traditional Finance?
The current financial sector is already in a way to adopt digital technologies in its operations. In general, the Financial Sector is a system that includes everything related to money, ie., from Insurance to banking and payments. The service of these financial industry's services is categorized into three types as Personal, Consumer, and Corporate.
Personal Finance - Its budget, saving, and spending of monetary resources of an individual over time.
Consumer Finance - It includes credit card services, personal loans, buying houses, payments in colleges and so on which makes people afford any products/services.
Corporate Finance - It involves financial activities such as funding sources, capital structures, activities to increase the company's value, allocation of tools and resources, and more of any businesses.
Regulations over Financial Sectors
The current traditional Financial system is regulated and the two key regulatory agencies of Financial Services are as follows:
- The Financial Industry Regulatory Authority(FINRA)
- The Office of the Comptroller of the Currency(OCC)
Problems In Traditional Finance
The current Financial System which is adopting digital technology also referred to as the "Fintech Industry", is now always comes up with large price tags. However, this technology adoptions aimed to simplify and optimize all financial services and banking.
Some of the challenges and issues that we face in the traditional financial
system are as follows :
- As mentioned above the current system is regulated by regulatory bodies, which means it involves third parties.
- The involvement of untrustable third parties in financial transactions results in a lack of trust.
- It also leads to miscellaneous transfer or transaction in some cases.
- The current financial system involves many steps to complete even for acquiring loans or funds, which is time-consuming and tedious.
- For lending and borrowing, the current financial sector involves the middle man which may sometimes lead to unexpected fraudulent activities.
- Since traditional finance is regulated, the number of hacks or criminal activities is hard to limit.
- This centralized financial system feels hard to eradicate illegal activities such as money laundering and terrorism in the real world financial system.
There are more and more problems and challenges rising each day in financial services such as banking, insurance, electronic payments, and much more.
In simple words, the traditional Financial systems are
- Lack of transparency
DeFi - The New Financial System
A new decentralized financial system that is being introduced to impede the issues in the current traditional system. This Decentralized Finance DeFi leveraging the distributed ledger technology, blockchain can make a better environment for financial services of all Fintech industries.
Unaware about the term DeFi? No worries. Look at our previous article What is Decentralized Finance(DeFi) ? to get an overview of this emerging new finance ecosystem.
This DeFi, growing trend in the Financial Industry will have game-changing impacts on global Finance in near future, that could help the fintech industry to find out the answer for How DeFi is eating traditional finance?
DeFi - Eliminating the issues in the Financial System
The Traditional Financial System uses intermediates to complete every single transaction between any two parties. As we all know that DeFI is decentralized and does not involve any middle man to process any transactions.
The current financial transactions can take up several times and may consume a high cost of money. But DeFi can make the process easier and reduce the time and cost involved.
This Decentralized Finance is one in which all the financial transactions are handled by blockchain smart contracts, which executes the process instantly and automatically.
Thus, DeFi can eradicate problems like lack of trust, time consumption, increased cost, and a lot more that are existing in the real-time traditional financial system.
How DeFi is Reinventing the Global Finance?
It is said that the Blockchain Technology, the underlying technology of DeFi is already familiar with 24% of the world's people. And by the end of 2024, it is expected that this blockchain technology would hit $20 billion.
The peer to peer lending was worth $43.16B in 2018 and it is expected to reach $567.3B at the end of 2026 with the CAGR 26.6% which is possible by the utilization of DeFi and blockchain technology in the Financial sector.
All the consumers demand a seamless digital experience in holding and handling their funds and assets. Thus, every Financial company should find a way to reduce the risks and challenges involved in the current system. Thus, DeFi can be the best solution for all Fintech companies to improve their efficiency.
Here let us look at some of the aspects of DeFi that are reinventing global finance.
As DeFi is an open source, the financial transactions that DeFi can provide are borderless. This Decentralized Finance allows access by anyone with the internet from anywhere in the globe.
We all know that DeFi relies on the decentralized blockchain technology in which each and every transaction and entry is immutable and no one can change or alter the recorded details.
No Central Authority
The Decentralized Apps are DeFi dapps that are built on blockchain eliminates the central authority and which implies there is no single point of failure and all the transactions are peer to peer. This reduces the time involved in the financial process.
In traditional systems, many take advantage of the ability to access the financial services for granted. DeFi which is decentralized and immutable in nature reduces huge problems such as asset theft, data modification, and more.
Democratic Banking System
With DeFi,a borderless mechanism we can build a democratized banking system that has the ability to get accessed by anyone from anywhere. For Eg: Dharma is a saving app that allows users to send/receive USD by earning interest on funds.
In the current finance system, it seems expensive to send money across the borders as it involves expensive intermediaries. DeFi has the potential to eliminate this intermediate and provide borderless transactions with better interest rates and reduced costs.
Even though the decentralized finance system processes the transactions faster and secured, the price volatility is an issue that we face. Stablecoins-digital assets pegged to real-world assets combine the transparency and security of digital currency with the stability of traditional fiat currency and provide stability in DeFi space.
In its current state, Smart Contract in DeFi acts as a middle man and automates all the transactions of financial services. These smart contracts are highly programmed and audited to provide uninterpretable Decentralized Financial Services
As this open-source DeFi is leveraging blockchain technology, the financial system built with DeFi will be highly transparent and trustworthy.
This blockchain-based DeFi, is permissionless and anyone can initiate the transaction at any time. This DeFi makes the process of Lending, Borrowing, loans, insurance everything
With DeFi, the blockchain-based open financial system, the interoperability is high and the users can access, utilize the data whenever necessary as blockchain is permissionless and transactions on blockchain network are open to accessible by everyone.
The major drawback of implementing DeFi in the real world is the adoption and liquidity. The use of Stablecoins has increased the stability and liquidity of DeFi and DeFi based projects
Lower trading fees
DeFi protocols are used to build open-source Decentralized Exchange Platform like Uniswap, which involves error-free DeFi Smart Contracts to carry out trading processes with less trading fees.
Smart Contract insurance is playing a vital role in DeFi space. Thus, DeFi provides a more confident and secure environment for Insurance sectors by reducing the risks involved.
Faster and Secure
In Decentralized Finance, all the transactions are executed in the blockchain network, which can process a huge number of transactions per second in a highly secured network. Thus DeFi products built on Ethereum can make faster and secure financial services.
Thus with DeFi, we may enjoy the effortless, permissionless, open finance, lending, borrowing, loan access, insurance, and lot more financial services, and solutions.
Benefits of Decentralized Finance Ecosystem
Listed here are the advantages or Benefits of DeFi over the traditional financial system
- No involvement of Central Entity
- High Liquidity
- Provides full control over funds
- Restrict the fraudulent activities
These are the advantages of DeFi- The New Decentralized Financial System over the current traditional financial system.
The Potential of DeFi is found and understood by many Fintech industry experts and they have started utilizing DeFi to tackle the inefficiencies in their current system and services.
The Future of Financial Sector with DeFi
Hope we have covered a major interesting things about DeFi and how DeFi will reshape financial services?. Now here let us have a short look at the Future of Financial Sectors with the complete implementation of DeFi into the real world.
Permssion Less Fintech Industry - DeFi can make the future financial system more permissionless, secured, fast, and more scalable than the one existing now.
Eliminates Limitaions - With DeFi with the elimination of all the limitations in implementing it completely across all the real-world applications, DeFi can make better space for riskless banking, lending, borrowing, boardless transactions, and all financial transactions.
Get to know more stuff about The Future Of Defi - Decentralized Finance
Who we are?
Hope we have delivered more information about the new financial system, Decentralized Finance(DeFi). It is time to discuss who we are.
We Bitdeal - DeFi Development Company, a group of 200+ blockchain experts who continuously update ourselves to the new trends and technologies to bring innovations in the crypto world with our surplus services related to cryptocurrency and blockchain technology.
Our experts are skilled that they assist you with smart contract development,dapp development,Ethereum token development, lending, and borrowing platform development, and more by leveraging the open-source DeFi protocols.
Why Pick Bitdeal for DeFi Development Services?
As DeFi is booming in recent days, there are many new companies in the market each day to provide the best defi solutions and services out there. Listed here are the key aspects of Bitdeal and the benefits you enjoy with our DeFi development services.
1. We have been surviving in the crypto industry for more than 6+years.
2. Comprises 200+ blockchain experts skilled in various blockchain networks and tools.
3. We inherit agile methodology in our DeFi Development process
4. Our Developers build lending and borrowing platforms using DeFi.
5. Flexibility in working hours to complete projects before deadlines.
6. Unbeatable DeFi Services with high-end security.
7. 24 X 7 uninterpretable support system.
8. Open communication about the project status at each phase of completion.
9. The best DeFi Services at affordable cost
10. Post support even after the completion of DeFi Project.
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