The Intersection Of Decentralized Finance And Traditional Finance

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INTRODUCTION

Decentralized finance intersection with traditional finance is the interesting topic I will be writing on today, ofcourse we might wonder how this could be as ordinarily we see that they are stark contrast but ofcourse intersection of this two is a break-taking innovation, an innovation that hasn't been seen ever before prior to the emergence of blockchain technology this is quiet significant to the financial industries the very first of it's kind.

I mean we might have wondered how this could be but it's not much of a hurdle though mixing traditional financial system with the wonderful innovative technology of blockchain and ofcourse blockchain impact isn't limited to any particular thing that's why it is innovative so blending it with financial system is no suprise at all.

I will talk about some of the areas of intersection between defi and traditional finance then you can decide what that can mean for you.

KEY AREAS OF DEFI AND TRADITIONAL FINANCE INTERSECTION

• ASSET TOKENIZATION

Well in the area of tokenization of asset we see this intersection between defi and traditional finance, how so?

When we talk about traditional finance and it's trading it focus purely on physical assets, yes traditional finance deals with the trade of physical asset, physical asset in the form of bonds and stocks, now how does defi come in here?

Decentralized finance helps to tokenized this physical asset, the stocks, the bonds or even real estate which are often traded by traditional finance in it's physical representation, through defi this physical asset are tokenized and made to be traded on the grand stage itself on blockchain, and ofcourse in general this has contributed immensely to the overall market liquidity because assets traded on blockchain are not restricted any day or time and trading is always open 24/7.
Truly this highlights a key area of defi and traditional finance intersection.

• LENDING AND BORROWING

Well lending and borrowing is another key aspect of traditional finance and defi intersection. Well first in the traditional platform how is this done?

Well today how do people lend and borrow using traditional finance and when I say traditional finance I mean the banks and other financial institutions which provides financial services to people, so borrowing here often requires a collateral believed to be of matching value to what you are borrowing or even more than to serve as an incentive for you to pay back and often when your credit score is low you can't borrow so for any wishing to borrow they would need to maintain a good credit score to enjoy the borrowing and lending services offered by traditional finance. How is this bettered by defi?

On defi platform borrowing and lending does not require any credit score whatsoever like we see in traditional finance, this process is done in automation using smart contract ensuring users could enjoy this services without much stress, I mean today we have defi platforms that this is beautifully illustrated in like the Aave and compound defi platforms, improving the borrowing and lending services offered by traditional finance.

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• PAYMENTS AND TRANSFERS

Also in the area of payment and transfers, whilst traditional finance most often times offer services which leaves customers dissatisfied due to one reason or the other. The payment and transfer process of traditional finance is really not something to be proud of.

First of traditional finance cost for transactions are really high, now imagine what happens when carrying out cross border transactions, ofcourse the fee it's even more costlier and if that was only the challenge but high cost of transaction and slow tranfer present a real challenge, the fees are much due to the fact that banks act as third parties here and needs to cut their own charges to maintain operation and so times when the volume of transaction becomes much the system lags behind.

Utilising cryptocurrency in this aspect atleast solve some of the challenges faced by traditional finance in carrying out this payment and transfer services, as defi ensures this is done unhitched, facilated by blockchain ensures cheaper cost of transaction and one that is considerably fast, xrp and trx are known for handling transactions at lightening speed which traditional finance could greatly benefit from.

• MARKET ACCESS

Defi ensure that it's users have unrestricted and unlimited access to the market at all times, the services are without any doubt, there is no entry barrier at all, the market does not require any one standing in between as an intermediary to help ensure access to the market, the market is also open 24/7 always at all times, such is the service offered by defi, and this greatly improve the service offered by traditional finance.

Ordinarily traditional finance doesn't have what it takes to keep the market running 24/7 because the brokers which help to facilitate this trades are humans are need to rest so they can't keep up and they mostly don't allow weekend trades and market also closes at a particular time in the day, the need of intermediary limits the market access traditional financial services offers it's vast users, good thing is being improved a great deal by blockchain much to the delight of everyone who loves financial freedom.

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CONCLUSION

Blockchain revolution is just too good that we merely have to pause and wonder what next? Which other area is left untouched I mean finance is one key area that it's impact it's felt but ofcourse it's really not restricted there as there are other key areas, but ofcourse in the intersection of defi and traditional finance no doubt payment and transfer, market access, lending and borrowing and asset tokenization reamins the key area which I have highlighted above.