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by Finage at February 2, 2021 3 MIN READ
Crypto
After the Great Recession, people's prejudices and shaken confidence in traditional banking are still not fully recovered. DeFi has coverage in this area. DeFi or decentralized finance is an innovative form of finance and does not require traditional intermediaries such as banks, brokers or stock markets. Transactions made through these institutions are carried out in DeFi with many technological solutions such as smart contracts and blockchain.
DeFi is quite different from the traditional financial system. Traditional finance has taken a long time to take its present form and the adaptation process is very slow. However, companies operating in the DeFi sector have created an alternative financial system to the traditional system from nothing in just a few years. Examples of these include payment systems, loan protocols, exchanges, and more. There is also a growing cryptocurrency market for fiat-pegged assets, including Tether (USDT) and USD Coin (USDC).
High Interest Rates
One of the main differences that differentiates DeFi from traditional finance is the potential returns users expect from their investments. For America, the average bank interest rate for a checking account is just 0.05%, which is improved to 0.08% for an average savings account. But when you keep your money in a DeFi protocol, you can earn an annual interest rate of 12% with stablecoins pegged to dollars. In this way, DeFi is far ahead of traditional banking in terms of fi nancial return.
Easy to Innovate
One of the most important advantages of DeFi is that it can adapt to every development in the financial sector thanks to the developing technology. Because in fact DeFi is technology and innovation itself. When you look at the innovations made by traditional banks in recent years, you will not find much to stand out.
It does not mean that banks have made no innovations at all. They have made innovations such as card payment technology, internet banking and mobile applications, Stock API, Forex API, which arise from the analysis of customer needs. But when we compare it with the accelerated development of technology, it seems that they will be insufficient to catch up with the age.
Removing Barriers
One of the key differences that sets DeFi apart from the traditional banking system is its ability to remove barriers. Decentralized finance strives to be accessible to all and to make banking more inclusive. Banks operating in real places have recently started to close their branches in order to reduce their expenses and save money. In the past five years, 3,500 banks have been closed in the UK.
With this move by traditional banks, face-to-face banking ceased to be as common as before, and created a suitable environment for DeFi to compete. For DeFi, which is trying to make banking accessible to everyone, banks have unwittingly reduced the barriers to competition.
Open to development
Even though DeFi has made great strides, especially in 2020, it is an area for continuous improvement. One of the major problems of this industry is its dependence on the Ethereum blockchain, as DeFi's growing popularity has led to higher transaction fees and slower transaction speeds.
As an alternative to the Ethereum blockchain, there are also new players appearing at the right time to attract a significant number of users. For example, Polkadot has caught the attention of many Cryptocurrency API developers and has started to be shown as a competitor for Ethereum. According to June 2020 data, Polkadot's "next-generation network" has shown a 44% increase in active developers in 12 months. Numerous new projects on Polkadot also show that it will have an important place in the DeFi industry.
Insecurity and anger
Resentment at governments that decided to bail out private banks with public money after the financial crisis may be one of the factors that slowly brought the end of traditional banking. This crisis is also closely related to the emergence of Bitcoin (BTC) and decentralized money.
The quality of the DeFi protocol depends on the person programming it. There have been a number of DeFi protocol exploits that showcase the industry's weaknesses. Despite all this, it is clear that the future of banking and financial innovation belongs to decentralization, as DeFi growth has not slowed down.
How Finage working on DeFi systems?
We are providing Real-time APIs for smartcontract and DeFi blockchain startups and companies to maintain their cryptocurrency, forex and US Stocks API needs with Real-time and Historical via API. You can also build your own DeFi platform with Finage data to catch up future technologies before too late.
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