Let me share to you guys this article about "DeFi" and how it's supposed to work with "tradFi" instead of against it. And let me tell you, it's some complex stuff. But I'll do my best to break it down for you in a way that's easy to understand.
Image Source : Pixabay
DeFi
DeFi, short for decentralized finance, is a new way of handling financial transactions. Instead of relying on traditional financial institutions like banks, DeFi uses blockchain technology to create a decentralized system where anyone can participate. This means you can use DeFi to make loans, invest, trade, and do all sorts of other financial stuff without needing a bank or other middleman.
TradFi
TradFi, on the other hand, is short for traditional finance. It's the way we've always done things, with banks and other financial institutions in control.
DeFi vs TradFi
Image Source : Pixabay
Now, some people might think that DeFi is trying to replace tradFi and take over the financial world. But according to this article, that's not the case. The idea is that DeFi should complement tradFi, not attack it.
The way it's supposed to work is that DeFi can offer new and exciting opportunities for people who might not have access to traditional financial services. For example, DeFi can make it possible for people in developing countries to participate in global financial markets, or for people with poor credit to get loans. At the same time, tradFi can continue to offer the stability and security that comes with using established financial institutions.
It's like how street vendors and fancy restaurants can both exist in the food industry. Street vendors offer affordable and delicious food, while fancy restaurants offer a more upscale dining experience. They're different, but they can both coexist and serve different needs.
DeFi in Action
One of the most popular ways people are using DeFi is through something called "yield farming." This is where people lend out their crypto assets to other people in exchange for interest. It's kind of like getting a return on your savings account, but instead of your money being held by a bank, it's being held by a smart contract on the blockchain.
Another popular use of DeFi is through something called "Decentralized Exchanges" (DEX) which allows for peer-to-peer trading of digital assets without the need of a centralized intermediary. This gives more control and autonomy to the users.
DeFi's Impact
The rise of DeFi has the potential to bring financial services to people who've never had access to them before. It can also make it easier for people to invest and trade, and can give people more control over their own money. But it's important to remember that DeFi is still a new and developing technology, and there are still a lot of risks and uncertainties.
TradFi's Advantage
On the other hand, tradFi has the advantage of being tried and tested over many years. It has a more stable and secure infrastructure, and it's regulated by governments and other organizations to protect users' interests.
The Coexistence
So there you have it, DeFi and tradFi can coexist and serve different needs. It's like how you have your fast food and your fine dining, both can exist and serve their own purpose. DeFi can offer new and exciting opportunities for people who might not have access to traditional financial services, while tradFi can continue to offer the stability and security that comes with using established financial institutions.
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