The world of finance has been undergoing a seismic shift over the last few years, with the rise of decentralized finance (DeFi) and the growing realization that traditional finance (TradFi) is no longer fit for purpose. In this article, we’ll explore why this is the case, and why DeFi is the future of finance.
Traditional finance, or TradFi, is based on a centralized system of financial institutions and intermediaries. This system has served us well for many years, but it has some fundamental flaws that have become increasingly apparent in recent times.
One of the biggest problems with TradFi is that it is slow and inefficient. Transactions can take days to settle, and the costs of intermediaries can be prohibitively high. This means that many people, particularly those in developing countries or with limited access to financial services, are excluded from the system.
According to a report by McKinsey, the average global cross-border payment takes between three and five days to settle and can cost up to 10% of the transaction value in fees. This can be a significant barrier to trade and can limit economic growth in developing countries that rely on international trade.
In addition, the World Bank estimates that around 1.7 billion adults worldwide do not have access to a bank account, with many citing the high cost of financial services as a reason for not using them. This lack of access to financial services can have a significant impact on people’s ability to save, invest, and build wealth, particularly in developing countries.
Moreover, traditional finance is also slow and inefficient when it comes to investment and fundraising. According to a report by Ernst & Young, it can take several weeks or even months for a company to raise capital through traditional channels, such as venture capital or private equity. This slow process can be a significant disadvantage for startups and small businesses that need to raise funds quickly to scale their operations.