The Blossoms of Traditional Banking Dwindles as DeFi Enters the Stage

In the scramble for a better, efficient and reliable financial system, the long established world of the traditional banking system is on the cusp of evolution. Digital assets industry is rising from every corner of the world like mushrooms. Cryptocurrency is taking over the global financial market.

People are swerving towards decentralized finance which seems to eliminate these compounding irregularities with its super-advanced technologies.

As of 2022, based on the World Bank’s global financial index, about 31% of adults remain unbanked globally–a low-scale statistical proportion as opposed to the expected value.

Truly, decentralized finance or “DeFi” has come a long way since its inception. According to a new data report, the total value locked inside the DeFi ecosystem has recorded a rise from $601 million from the beginning of 2020 to $239 billion as of this year. It’s so glaring that banks are digging for new ways to wrought upon the bullish decentralized finance.

What You Should Know About Decentralized Finance

DeFi, short for decentralized finance, is a collective term that represents all peer-to-peer product and financial services built on the blockchain technology. Anybody that has access to internet connection can engage services like borrowing, lending, purchase and sales.

Unlike the traditional banking system, DeFi eliminates the whole concept of third-party or brokers whose services are often heartbreakingly slow, opaque and error-spammed, through the help of smart contracts or open-source protocols.

This way, custodial authority of one’s funds is handed over from centralized financial institutions to the consumer. Smart contracts are a collection of computational algorithms that serve as a digital agreement between two individuals.

With DeFi, people no longer have to worry about the time it takes to go to the bank or to process and confirm transactions, or to sign paperworks, or even worry about risky errors that could come into the mix. In contrast to the whole backlash of the traditional banking system, individuals and institutions, for once, can access all the services rendered by the long established banking duties — borrowing, lending, purchase and sales — and even more, on a transparent and sufficiently advanced ecosystem within a couple of clicks, without having to pay outrageous fees for the whole process.

The goal, among all aspirational goals, is to create a free, always-open and digital economy, and decentralized finances are continuously on the steers.

DeFi Vs Banking Sector: What Keeps the Wheel Rolling?

There’s no doubt that decentralized finances offer well-meaning solutions to some of the hitches sponsored by traditional banking systems. But, on a second glance, DeFi also offers a range of opportunities that the banking sector can use to enhance their incumbent operations and services which are apparently slow, monopolistic, error-prone and legalistically hectic. The truth is that how the banking sector responds to this new trend of financial disintermediation will have great influence on this growing digital economy.

To look into several ways by which Defi will influence the banking sector, one first needs to understand the reasons for its efficiency and sufficiency. Why and how is decentralized finance changing the face of the current banking system? Here are the reasons:

High Investment Returns

Traditional bank users often get low returns on their investments. In contrast to this, decentralized finance subscribers are offered a lot of incentives on their opportunity desks for a high interest on their investments. “Staking” is a typical example. Staking allows users to earn substantial rewards as they lend or invest their digital assets.

However, in the case of the traditional banking system, even the meager interests are cornered by the bank or broker. Decentralized applications like CrossFi also offer CrossFi Swap opportunities for participants of the network to swap their tokens at a lower rate. The list is endless.

Reduced Interest on Loans

Traditional banking systems are controlled by either the government or any other intermediary. This means one ought to surmount different hurles of paperworks and financial taglines to access funds, whether from trading stocks or stock exchanges.

In another case, certain regulatory bodies like the US’s Securities and Exchange Commission or Federal Reserve have strict regulatory rules that directly or indirectly affect the rates of interests. This destabilizes loan services, thereby manifesting unstable interest rates for business owners or individuals who might need a loan.

In contrast, DeFi creates a direct on-chain financial service that eliminates banks and other third-party souvenirs who might want to earn from each transaction. Not only are users shielded from the bulky rates charged for bank transactions and the crazy influence of credit checks in loan processing, but they are also able to access a loan as long as there’s enough collateral available.

Transparency

Decentralized finance gives users custodial authority over their assets. This allows people to better manage their investments and moderate their transactions. The blockchain technology on which DeFi is built, as a public distributed ledger and many more, creates a trustable and transparent ecosystem.

Every transaction is automatically recorded as a “block” or “hash” on the Blockchain through the help of deployable smart contracts, and utterly unalterable. Unlike the traditional banking sector where the consumers lose control of their assets and are prone to risks.

Accessibility

DeFi is inarguably accessible to everyone, regardless of geography, identity or societal and financial status. Anywhere you are in the world, as long as you have a phone and a strong internet connection, you can be a participant in the financial system. Unlike the traditional banking sector, where one needs to undertake strict regulatory procedures before becoming a participant.

Autonomy

As a participant in decentralized finance, you have complete control over your investments and digital assets. There are no intermediaries, no brokers, no lenders, no exchanges. Therefore, if you want, you can stake, borrow, lend and earn substantial returns on your investments.

The Bottom Line

Decentralized finances have given individuals a fairer opportunity to invest their money and earn high-scale returns while doing so. Also, they have created an open-source, efficient and reliable environment where individuals and businesses have access to everything the traditional banking system offers and even more, from unlimited accessibility to transparency to an excellent loan system. The train is on the move, and everyone is allowed to join.

CrossFi is a cross-chain protocol that provides liquidity to you for Filecoin staking and rewards.

CrossFi Official Website: https://crossfimain.com

CrossFi DApp Address: dapp.crossfimain.com

CrossFi Official Twitter Account: https://twitter.com/globalcrossfi

CrossFi Official Discord Group: https://discord.gg/UKGSX3VBY3

CrossFi Official Global Telegram Group: https://t.me/crossfimain_en