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Does the banking industry really seem to be behind the times? Let’s dive in and explore the current transition from banks to crypto!
Traditional Banking Shortcomings
To maintain market share in a mature industry, banks have a history of being notoriously anti-competitive and reluctant to allow customers to share their information or integrate with other financial service providers. However, banks usually benefit more than consumers. This has produced multiple flaws in traditional banking institutions.
- Fragmented landscape of banking systems that don’t communicate with one another effectively.
- Ineffective sharing of consumers’ past financial information which has restricted access to credit.
- An inauspicious setting that has slowed financial innovation.
And that’s where decentralized finances come into play! DeFi protocols offer their services using permissionless, transparent, and interoperable open-source software systems and secure crypto wallets. As a result, dApps can innovate on each other without any permission or risk of losing access to critical infrastructure layers, while users are free to bring their assets and data with them across the ecosystem.
TradFi and DeFi: Inevitable Competition
DeFi has only recently emerged, but the sector has rapidly matured to facilitate several foundational banking services, including stablecoins, lending and borrowing, exchanges, derivatives, data, asset management, and others.
Decentralized lending solutions, including multiple crypto wallets, compete with bank checking and savings accounts by letting users freely store funds and access higher interest rates. DEXs and private cryptocurrency wallets connect liquidity networks, making trading as simple as sending an email across the internet. DeFi enables anyone to provide these services to anyone else with an internet connection anywhere across the globe.
Decentralization is the third phase of growth for the crypto economy. It’s also the next phase of Fintech innovation. It can make banking as accessible as the Internet has made information. DeFi seeks to transform the way people establish trust on the Internet and provide Internet users with a new banking alternative.
DeFi users have grown x6 year-to-date to 3.5 million, and will soon approach the scale of leading banks if this rate of growth can continue.
DeFi’s total value exceeds $170 billion, equivalent to 1% of all commercial bank deposits in the United States, making it the 18th largest bank in the United States by assets.
From these assets, DeFi is on pace to generate $5 billion in annual revenue. The global financial system generates $5.5 trillion in revenue by servicing $300 trillion in assets, while a single U.S. digital wallet user could be worth $20,000, leaving a large opportunity for Decentralized Finances.
Banks and Crypto Wallets: Changing Paradigms
Given improved rates and user experiences, it’s now obvious that new Web3 users who earn tokens through games and NFTs will prefer to save those tokens in Decentralized protocols and secure crypto wallets over TradFi banks, thereby increasing the number of DeFi users.
Let’s explore how DeFi offers a paradigm shift. We’ll contrast traditional banks with the recently launched Crypto Wallet, Defexa.
Customers – Can a resident of China easily open a bank account in Australia? Or is it possible for a US citizen to seamlessly issue a credit card at Finland Bank? Certainly, but the process is really complicated and accompanied by exhausting paperwork. TradFi is limited to specific geographies and privileged customer biases. Meanwhile, DeFi stands out for non-discriminatory equal access for anyone with an internet connection. With the recent launch of Defexa Wallet, their Crypto Wallet Mobile App is already available worldwide.
Asset Custody – In banks, you give up your assets to institutions or a custody provider. dApps allow users to store assets directly or in non-custodial smart contracts. In the case of Defexa Wallet, users are the sole owners of their assets, as it is a non-custodial digital crypto wallet.
Centralization – Banks are centralized institutions that are regulated by governments and other authorities. DeFi, on the other hand, is decentralized and operates on a peer-to-peer network without the need for intermediaries. Defexa acts as a decentralized and non-custodial crypto wallet, removing all third-party risk while interacting with the Defexa Wallet App.
Security – TradFi has established security measures and insurance to protect customer assets. Still, banks hold the right to freeze your account and the funds in it. Decentralized protocols, on the other hand, secure your data and prevent unauthorized access to your assets. If you keep your seed phrase safe, you have nothing to worry about. Additionally, during development, Defexa Digital Wallet placed a high priority on user security and used AppSec technology to offer banking-level security.
Interoperability – While TradFi remains utterly traditional, DeFi combines crypto and fiat, attracting even more new users to innovative and decentralized finances. Defexa Wallet not only supports safe storage and convenient management of 100+ tokens, but simplifies entering crypto with a built-in Fiat On-ramp feature. Additionally, Defexa will soon introduce a global bank card that supports cryptocurrency purchases.
Accessibility – Banks require users to have a bank account and often have strict requirements for opening one. Cryptocurrencies, on the other hand, are more accessible and can be bought and sold by anyone with an internet connection. With Defexa Wallet, users stay anonymous. As a decentralized wallet, Defexa does not require KYC. The process of creating an account takes no longer than two minutes.
Overall, banks and cryptocurrencies represent two different approaches to finance, each with their own advantages and disadvantages. Banks offer stability and established regulations, while cryptocurrencies offer greater accessibility and individual control over assets. However, innovation never stops, and we are currently witnessing a financial revolution! The Fintech industry is constantly changing and evolving, while we’re currently seeing a huge influx of new ideas and technology that will shape the future of banking.
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*This article was paid for Cryptonomist did not write the article or test the platform.
