Traditional finance, also known as Tradfi, is an established financial system with which most people interact today by moving and managing money via institutions such as banks. A saving or a current account, open with an approved and regulated bank, is a tradfi product. In addition, mortgages, loans and foreign exchanges also work in the field of Tradfi.
The term “tradfi” is popularly used to compare their financial offers to DEFI (decentralized funding), which works via blockchain and smart contracts. The rise in protocols DEFI is more than likely because of their global availability 24/7, which means the accessibility of anywhere and of everyone. Transparency, another major aspect of the blockchain, adds more to its credibility, and no third -party involvement makes it secure piracy.
In this article, we will answer certain common questions, such as “Why does Defi attract so much attention?” Or “Tradfi will he be replaced by Defi, or do they converge?” We will compare Tradfi and fully defense to achieve a conclusion.
The rise in protocols DEFI: a new financial system?
DEFI protocols are blockchain -based platforms that allow various financial services, such as loans, loans, etc. Without the need for conventional bank applications or account opening, users interact with DEFI using decentralized applications (DAPP), which are based on blockchain networks.
Instead of monthly payments, DEFI provides a range of financial services such as cryptocurrency loans to gain real-time interests and awards. Instant loans without documentation are available for borrowers, including short -term flash loans; A functionality not available thanks to traditional financing.
Thanks to decentralized exchanges (DEX), users can also exchange with each other, buying and selling cryptocurrency assets without the need for the intermediary. Users can also participate in returns agriculture, which is the process of providing liquidity to DEFI protocols in exchange for awards or storage of cryptocurrency in high interest in conventional bank accounts to increase their savings.
Cryptocurrencies based on reliable assets such as the US dollar offer a reliable reserve of value and a means of exchange still strengthening DEFI. It also facilitates derivative trade, which allows users to take long or short positions on assets, just like the purchase options or term contracts on conventional markets.
By providing global access, the protocols DEFI improve finances by allowing the participation of anyone with an internet connection wherever they are. They operate independently of intermediaries unlike traditional finance, to allow transactions without authorization and increased financial inclusion.
By lending, by dotting and making agriculture, users can take advantage of higher yield possibilities that frequently surpass banking interest rates. Defi undermines the domination of Tradfi by focusing centralized control, reducing dependence on banks and providing financial services to those who have no bank accounts.
In addition, stability and liquidity are improved by decentralized exchanges (DEX), and stablecoins increase the attraction of DEFI as an open, efficient and more user -friendly substitute for traditional financial systems.
DEFI risks and challenges
Although it has considerable advantages, decentralized finances also include risks and challenges that must be treated. The vulnerabilities of smart contracts are a major concern because hackers can take advantage of the coding of errors considerably. For example, security percussion and cryptocurrency scams cost investors more than $ 10 billion in 2024.
The carpet prints are another risk in which the developers announce a project, then fly the money to investors. A notable example is the traction of carpets of $ 56.5 million in Bitforex.
In addition, DEFI Wallet scams and the vulnerability of the platform are security problems that have unfortunately become a reality. The largest cryptocurrency breakage ever recorded took place in February 2025 in which the cryptocurrency exchange schpto exchange experienced a flight of $ 1.05 billion from a cold portfolio. These problems are aggravated by the lack of regulation of the DEFI industry which leaves the victims with few options for legal action.
Given the lack of in-depth regulation, the president of the CFTC, Rostin Behnam, issued a disastrous warning as to the cryptocurrency market of 3 billions of dollars highlighting dangers such as financial fraud and the collapses of the possible market which lead to believe that DEFI is more volatile and risky than traditional financing (Tradfi).
The decentralized and unregulated DEFI structure makes participants more sensitive to market fraud and fluctuations while strict tradfi regulations offer considerably more stable and legal protections for investors.
The path eventually: tradfi and convergence defi
To increase efficiency, financial institutions incorporate DEFI components. Assets such as securities and bonds can be tokenized to increase transaction speed and efficiency. Fidelity and Blackrock are two companies investigating this change.
Blockchain colonies simplify procedures and State Street reflect on token obligations to improve the management of guarantees. Institutions are attracted to hybrid models such as Cedefi which combine the difficult tradfi regulations with the notable transparency of DEFI.
However, stronger security and transparent regulations are necessary for general adoption. To protect investors and promote innovation, the SEC has established a working group to create more transparent cryptographic regulations. The realization of this balance is essential to the future expansion of DEFI.
Conclusion
DEFI offers transparency and wider accessibility, while traditional finance (tradfi) serves more stability and regulatory monitoring guaranteeing investor protection. DEFI influences Tradfi’s evolution towards more inclusive and effective systems, but it is unlikely to replace it completely despite its innovations.
While the financial landscape continues to change, it is imperative to stay up to date on these developments.
Faq
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Is Defi better than Tradfi?
It depends on risk tolerance. Tradfi offers stability and regulation, while DEFI offers transparency and accessibility.
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What is the future of Defi?
Defi’s future will be shaped by institutional adoption and regulations with safety improvements playing an essential role.
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What is the convergence of Tradfi and Defi?
When blockchain technology and token active ingredients are incorporated into conventional hybrid models such as Cedefi are created.
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What will be the size of DEFI by 2030?
Defi has the potential to become an important financial sector that year if adoption and regulation continue
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