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Comparison between DeFi vs conventional Banking By Vinoth Venkatesan
Basics of DeFi Decentralized Finance or “DeFi” is an umbrella term encompassing the vision of a financial system that functions without any intermediaries, such as banks, insurances, or clearinghouses, and is operated just by the power of smart contracts. DeFi applications strive to fulfil traditional finance services (also called Centralized Finance, or just CeFi) entirely permissionless, global, and transparent. DeFi is likely to have a substantial impact on how banks function in the future and even can shift the structure of the whole financial system at a macroeconomic level.
DeFi challenging traditional finance actors Since its inception, the vision of a new financial system has accompanied the blockchain space, and it’s been an aspirational dream for the blockchain community. Past two years, DeFi has grown astonishingly, and billions of USD have gone into ecosystem development. In the following, you will see the comparison with conventional banking systems and an overview of the actors in the DeFi ecosystem to provide a clear context on how DeFi is reducing the gap over traditional banking.
Conventional Banking vs DeFi — Comparison
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A quick look into the traditional banking vs DeFi based protocols; this data will help you understand how DeFi is snowballing.
DeFi will outperform the traditional finance system in the future There are three reasons why DeFi has the potential to outperform the conventional financial system and gain increasing attention in scientific, economic, and public debates: 1.
Speed of growth: DeFi is a highly scalable and global ecosystem. Once DeFi as a whole (or a specific DeFi application) proves its utility, exponential growth is possible. DeFi Pulse monitors the total value locked (TVL) on smart contracts on all relevant DeFi applications.
2.
Room for growth: According to Messari, a crypto market analytics firm, the capitalization of all DeFi applications was just 1.5% of the total crypto market as of July 2020. In addition to that, we can argue that there is much room for growth only by further asset redistributions within just the crypto space.
