TradFi is shorthand for traditional finance.
This refers to the mainstream financial system that is in operation globally. It is summed up by the collective term Wall Street although applies to any financial institution around the world.
TradFi is noted for its centralization. Many of the institutions are household names. They are also gatekeepers. These corporations can be hedge funds, banks, brokerage firms, exchanges, or anything else that has to do with money or investments.
It is also known to be an exclusionary system. There are regulations in place that establish accredited investors while also obligating institutions to operate under KYC laws.
TradFi is contrasted by the concept of decentralized finance (DeFi). This was an idea that came about with the introduction of blockchain. Bitcoin was the first which provided the ability to operate a medium of exchange without a centralized entity. Through the use of cryptocurrency mining, transactions were validated by computer nodes solving complex mathematical equations.
With the release of Ethereum, the smart contract was introduced. This allowed for the creation of financial services above simply the transfer of value. Here is where the idea of DeFi really took hold.
Some believe the future is going to be DeFi eventually overtaking TradFi. Other opine that we will likely see a blending of the two. What is not debated is the powerful of the established TradFi companies. They are some of the largest in the world.
Proponents of DeFi feel that a system heavy in regulation does not serve to protect individual investors. Instead, it only opens up the door for corruption. The other side of the debate feels that Defi is akin to the Wild West, with lawlessness making people vulnerable to fraud and other scams.
One thing we know is the decentralized nature of blockchain and, hence, some cryptocurrency means that control is going to be difficult. This was established in the digital world, never residing in the physical. It means that it is instantaneously global in nature. That makes it very difficult for governments to control. Central banks are also going to have a difficult time countering these developments.
Posted Using LeoFinance Beta