Since the industrial revolution, the traditional finance industry (TradFi) has remained the same, with trust being placed on intermediaries such as brokers and custodians that handle everything related to managing money.
While financial technology (FinTech) startups have sprung to solve some of the inefficiencies of the industry, fundamental hurdles caused by heavily centralized and profit-driven systems remain.
Now, with the advent of blockchain technology and decentralization, a new form of financial technology has appeared: decentralized finance, or DeFi. This new deployment of finance promises to solve the issues of the past by ushering in decentralized, intermediary-free financial products for the masses.
These products are applications that function without any intermediaries, such as banks and brokerages. Another easy-to-identify difference is, in DeFi, there is no need to provide any identification for access; instead, your web3 wallet is your identification and access pass.
DeFi is accessible by everyone that has an internet connection without barriers or discrimination, with trustless service and transactions that can be confirmed independently by the user. Though currently hindered by gas fees (specifically on L1 Ethereum), DeFi also offers lower fees through the reduction of intermediaries that all want a slice of the pie.
These benefits don’t come without downsides, however. For now, DeFi is complicated and difficult to understand. Some may call it high risk due to being in an experimental phase, with audited smart contracts yet still the potentiality of exploits or fundamental issues with the “money legos” that compose DeFi, such as stablecoins. You’ll also not find a centralized entity to take responsibility, so there is no recourse or protection if things go wrong.
More than simply facilitating more convenient transactions, DeFi continues to grow at an astonishing pace and it is only a matter of time before it is adopted mainstream and eats TradFi’s lunch — in our opinion, it is inevitable. As per DeFiLlama, there’s currently $275.66B in crypto assets deployed into DeFi protocols, and we expect this to grow rapidly. DeFi will house trillions, and we aim to participate through the various iterations of the upcoming PayBX app.