DeFi Lending and Borrowing In 2024

Vesper Finance
Vesper Finance
Published in
4 min readFeb 2, 2024

Exploring the Core Differences Between DeFi and TradFi and Their Impact on the Future of Finance


What is Lending and Borrowing in DeFi?

When you think about borrowing money, you probably picture walking into a bank, filling out lots of paperwork, and waiting for a credit check. That’s the world of TradFi — centralized and often wrapped in red tape. However, DeFi on the other hand flips this whole process on its head.

In DeFi, the rules are different. There are no banks, no credit checks, and no need to hand over your details. It’s all about blockchain, where decentralization is encouraged. Imagine a system where you’re in full control, with your digital wallet acting as the only gateway to your funds. This is a game-changer for people who’ve been locked out of the traditional banking system.

Here’s how it works:

Platforms on Ethereum for example let you use your crypto as collateral to take out loans. It’s a simple trade-off — you lock up some tokens, and in return, you get access to funds. These platforms run on smart contracts, which are self-executing contracts with predefined terms directly written into code. Once you agree to a contract, it’s set in stone — if you want to change anything, you need to settle the current deal and start a new one.

The lending and borrowing process in DeFi might remind you of traditional finance, but there’s a twist. In DeFi, this happens in a more dynamic environment, where thousands of people are lending and borrowing from each other, all without ever interacting. This is how decentralized markets are born.

Popular Protocols


Perhaps one of the most popular lending platforms out there, Aave enables users to lend and borrow a wide variety of crypto assets. One of the standout features of Aave is its flash loans, which are uncollateralized loans that must be repaid in the same transaction. This unique feature has opened up new possibilities for developers and arbitrageurs.


Similar to Aave, Compound is a prominent DeFi lending platform featuring an algorithmic interest rate protocol. It enables the direct supply of collateral and borrowing of assets through a single collateralized debt position (CDP) model, simplifying transactions and increasing capital efficiency.


MakerDAO is centered around the DAI stablecoin, which is pegged to the US dollar. Users can deposit collateral in the form of various cryptocurrencies to mint new DAI. MakerDAO is widely considered one of the more stable choices out there.

How is TradFi Different?

Traditional finance is like the classic playbook of money management. This means operating on a centralized model, which is essentially big, established institutions such as banks, credit unions, and finance companies at its core. They are the gatekeepers, controlling how money is saved, borrowed, lent, and invested.

One of the key features of TradFi is the reliance on intermediaries. Want a loan? You go through a bank. Looking to invest? You might work with a brokerage. These intermediaries serve as the link between you and your financial goals, but they also add layers of process and regulation. For instance, getting a loan in TradFi typically involves credit checks, income verification, and collateral — steps designed to reduce risk but can also limit accessibility.

This structure is extremely segmented. Those with established credit histories, steady incomes, and existing bank accounts generally find TradFi more accessible. However, it can be a challenge for underbanked or unbanked populations to tap into these traditional financial services.

A Look into the Future of Finance

In exploring the dynamic landscape of finance, we’ve examined both DeFi and TradFi. With this understanding, the question arises, is DeFi poised to replace TradFi? While the initial response might lean towards “probably not,” it’s important to understand the possibility of a hybrid relationship.

TradFi indeed has a deeply ingrained system, one that’s been built and refined over centuries. Replacing it entirely seems like a huge task. However, this doesn’t mean DeFi lacks influence. DeFi’s role in the evolution of finance, especially looking forward to 2024 and beyond, is both crucial and transformative.

The true potential of DeFi lies in its ability to reshape our understanding of financial operations. It offers a glimpse into a future where finance is more accessible and secure, breaking down barriers that have long stood in the traditional system. While it’s accurate to say that TradFi often exhibits a slower pace of change, we’re beginning to witness signs of a gradual shift towards a more DeFi-inclusive model.

The future of finance might very well lie in a hybrid model that adopts the best of both DeFi and TradFi. This isn’t just speculative, it’s already happening. This is evident in HSBC’s partnership with FCF Pay to enable mortgage and loan payments in various cryptocurrencies, a significant stride towards the mainstream adoption of digital currencies.

Additionally, initiatives such asOneSafe, which position itself as a Global Crypto Banking solution for Web3 startups, indicate a growing trend. Such projects show the ongoing integration of traditional banking systems with Web3 and crypto technologies, suggesting that the future financial ecosystem will likely capitalize on the strengths of both DeFi and TradFi.


As we progress through 2024, DeFi’s innovative approach to lending and borrowing is poised to significantly influence the financial landscape, complementing rather than replacing traditional finance. This merger promises a more inclusive, efficient, and versatile financial ecosystem, harnessing the strengths of both decentralized and traditional systems for a broader and more adaptive approach to finance.