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DeFi Sunday: This industry will destroy the banks as we know them

From the name "decentralized finance", it is clear that the coming competition should be of particular concern to the banks, which are currently the main point of the retail-financial clash. According to many, commercial banks, as we know them, will even disappear completely.

We are witnessing a great battle for consumer deposits

Analysts often refer to this struggle as the battle of the century. It will take place between traditional finances with their representatives in the form of commercial banks and the decentralized finances industry - DeFi. You may think that the world of finance is run by huge multinational companies, but the truth is that the main driver of the global economy is retail. They currently interact with the financial world almost exclusively through commercial banks, to which they are often giving all their funds.

Most people have a negative or, at best, neutral relationship with their bank and that is not a surprise. Banks are known for their outdated services and unfair practices - hidden fees, slow transfers and especially the worst interest rates you can imagine. These user experiences almost border with a hostile environment. In addition, the situation is not made easier for banks by regulations, which fundamentally reduce their ability to bring various innovations or secure profit.

DeFi - Decentralized 3D illustration DeFi - Decentralized 3D illustration, Source: shutterstock.com

DeFi has a huge opportunity to take control of global finances

Of course, companies operating in DeFi are aware of this situation and are literally turning the current model of working with funds upside down. In the future, we are likely to see such a fundamental change as the adoption of the Internet brought in this market. Users will be able to enjoy absolute control over their finances, with virtually no restrictions. There will also be a possibility to change the service provider within few seconds, with just few mouse clicks.

In the world of retail banking, the system is based on the fact that we must trust people in the management of banks. This trust is quite expensive and does not always pay off. In contrast, in the new decentralized world, we rely on smart contracts and their code, the main advantage of which is that it has no interests of its own. In addition, these services work 24/7, 365 days a year and all of that without any employees. They are turning traditional financial processes into fully automated programs.

In DeFi, capital can flow into the best opportunities almost immediately, and these innovations bring real competition to the financial world. This is the main reason why DeFi will sooner or later kill commercial banks. If the user can get double-digit interest rates in his preferred decentralized application, why would he leave the money in the bank?

Decentralized finance has another ace up its sleeve

It goes without saying that with industry as young as DeFi, we are still witnessing intensive development and a wealth of innovation. One of the technology progresses that the industry could significantly benefit from is artificial intelligence and machine learning. These technologies bring a whole new level of efficiency to the world of finance and, combined with DeFi, could be a real revolution.

It is important to work on the shortcomings

The need for an accessible and transparent financial system is becoming increasingly clear. DeFi is working to replace outdated systems, highlighting the failures of traditional centralized entities and providing a viable option for global financial freedom.

To date, however, DeFi has recorded more than $ 285 million in hacker attacks on the Ethereum blockchain alone. In addition, Ethereum is significantly overloaded in terms of transactions and its use is for now relatively expensive. In this example, it is clear that there is still a lot of work and development ahead for DeFi. Its main advantage - automated process control, is also the biggest challenge. We will have to wait a while for a state where we can absolutely rely on DeFi smart contracts. But then the financial world will experience a real battle from which traditional finance and banks, with the current set-up, are unlikely to emerge victorious.

Slavomír is working in the field of cryptocurrencies since 2018. As a Co-Founder and Chief Marketing Officer of Dollero Technology, which is currently developing a crypto exchange ...

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