How DeFi is reconstructing traditional finance system

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.

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.

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.

Problems In Traditional Finance

The current Financial System which is adopting digital technology also referred to as the "Fintech Industry", 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 :

1. As mentioned above the current system is regulated by regulatory bodies, which means it involves third parties.
2. The involvement of untrustable third parties in financial transactions results in a lack of trust.
3. It also leads to miscellaneous transfer or transaction in some cases.
4. The current financial system involves many steps to complete even for acquiring loans or funds, which is time-consuming and tedious.
5. For lending and borrowing, the current financial sector involves the middle man which may sometimes lead to unexpected fraudulent activities.

The New Decentralized Finance

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.

How DeFi is Reshaping the Global Finance?

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.

Borderless

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.

Immutability

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.

Financial Inclusion

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.

Source : How DeFi is Refining the Global Finance System ? 

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