The world of decentralized finance has made an enormous amount of progress over the last decade. What was once a little-known system is now an active financial ecosystem that’s used in every corner of the world. In fact, the total value locked in DeFi applications, systems, and accounts recently moved over $50 Billion USD, demonstrating the huge value to be found in this financial system.
From cryptocurrency to large-scale exchanges, and DeFi applications to the Metaverse, there are countless ways that decentralized financial systems are presented. However, despite their variance, significant uptake over the last decade, and billions of USD in the system, DeFi still lags behind traditional (centralized) finance.
Of course, this is hardly surprising. Centralized finance has been the only option for hundreds of years, meaning everyone actively participates in financial systems using CeFi. That said, the past five years have begun a major shift in this regard, with more people than ever before taking notice of decentralized finance and looking toward it for a new way of handling their money.
And, as the world pays more attention to the world of DeFi, the central challenges that prevent mass adoption are rapidly being overcome. One of these challenges has been access to funds. While cryptocurrency provides an accessible way to invest and diversify portfolios, it presents difficulties when users want to withdraw their funds in fiat currency.
While CeFi allows users to withdraw directly from their accounts with ATMs, crypto ATMs are few and far between. However, in order to bridge the gap between CeFi and DeFi, companies like Soil are working on innovative solutions that help to provide instant access to crypto-backed cash.
Let’s explore the world of cryptocurrency, demonstrating how DeFi solutions are rapidly innovating and providing unique alternatives to traditional finance.
How Cryptocurrency Platforms Are Challenging Centralized Finance
One of the fundamental problems that traditional financial systems have is that they’re notoriously inaccessible. Even in 2023, over 1.4 billion people are unbanked, not being able to access a bank account due to the inefficiencies of legacy infrastructure. Around 4.5% of USA citizens are unbanked, unable to set up an account due to not having a permanent address.
Although traditional finance is an expansive system that offers many benefits, its inaccessibility and slow operations make it increasingly unappealing as other options reveal themselves. Decentralized finance makes a powerful challenge to traditional infrastructure, offering an innovative system that is accessible to absolutely everyone.
What’s more, by hosting financial ledgers publicly, blockchain systems offer a promising solution to financial fraud, bribes, and illegal payments. Every single transaction that’s made over a blockchain network is inscribed on a block of information that the general public can then inspect.
By making payments public knowledge, decentralized financial systems present a promising anti-corruption tool, making them highly desirable for economies that deal with political, social, and enterprise corruption. Equally, the decentralized nature of blockchain makes it an attractive option for those that want to move away from traditional structures of power, like banks and governments, and enter a more equitable financial system.
This innovative technology is rapidly becoming the go-to choice for investors, users, and even businesses that are looking for a new way of managing their money. That said, DeFi cannot completely replace centralized financial systems. At least, not quite yet.
What Services Does Traditional Finance Offer That DeFi Can’t?
Although DeFi is offering an increasingly competitive alternative to centralized finance, there are some points that the blockchain community is still attempting to puzzle out. The first and most impactful of these is the question of regulation. Without centralized regulation, DeFi is open to a number of additional security threats that compliance takes care of in traditional finance.
Most recently, the world saw FTX use billions of dollars of user funds fraudulently, with the lack of regulation meaning the company was able to take advantage of its users. This is, unfortunately, not the first time this has happened in the world of decentralized finance, with the slow movements of regulatory bodies and uncertainty around how to regulate leading to slow reactions in government and supporting communities.
Another faucet of centralized finance that DeFi has not yet reproduced is ATM-level accessibility. While users can trade and invest in digital assets, withdrawing their funds in fiat currency is currently more of a challenge.
That said, both of these core issues are currently being faced by the DeFi community. For example, the blockchain company Soil is currently working on a crypto-backed withdrawal scheme. By owning cryptocurrency, users will be able to withdraw fiat currency, using crypto-backed withdrawals to instantly access their finances.
While this is only one of many solutions, it demonstrates that DeFi is actively working on overcoming its own limits. Over the next decade, DeFi may be perfectly positioned to take a larger portion of the financial markets.
The world of decentralized finance has come an incredibly long way in the past few years. While traditional finance is still more commonly utilized by the general public, the rapid development of new technologies, systems, and strategies has started to narrow the gap between DeFi and CeFi.
As blockchain technology continues to advance, we’re likely going to see increased adoption, utility, and performance from decentralized finance. Over the next few years, core developments like Soil’s instant access DeFi money will help to challenge the dominance that traditional finance currently holds.