Report: DeFi could rewrite the traditional finance landscape

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A San-Francisco-based crypto index fund manager, Bitwise, has released a report showing its perspective of the burgeoning decentralized finance (DeFi) sector saying it could have an Amazon-like effect on the traditional financial system.

In the report titled “Decentralized Finance (DeFi): A Primer for Professional Investors,” the crypto index manager noted that despite the significant changes that digital technologies have effected on several industries, traditional finance remains unchanged, as it is still very much dependent on the archaic underlying infrastructure behind payments. Though it noted that there have been improvements in user experience through financial applications like Venmo and Cash App.

However, with DeFi gradually cementing its place as a viable alternative to the traditional system, the financial system could have a newer outlook in years to come.

According to the fund manager:

“DeFi replaces traditional financial intermediaries with software: self-executing ‘smart contracts,’ secured by blockchain technology, allow innovators to reimagine everything from lending to trading, asset management, and more.”

The advantages it holds over traditional finance

To cement its point, the Bitwise report examined the various advantages DeFi holds over the traditional financial system.

The major advantage DeFi holds over the traditional financial system is the speed at which it completes transactions plus its almost nonexistent transaction fees.

Bitwise notes that because the innovation does not require the input of any intermediary to complete a transaction, financial activities are completed at record time and the charged fees are minimal when compared to what is applicable via the traditional system.

Bitwise Research Analyst Ryan Rassmusan pointed out that despite the level of growth seen by DeFi, it is still very minute compared to what traditional finance commands. According to him, “JPMorgan, the world’s largest bank, boasts a market cap of [about] $508 billion, more than 3x the combined value of all DeFi apps combined.”

He concluded that “DeFi is tiny compared to the size of the industry that it aims to disrupt: [less than] 1% of the $24 [trillion] legacy finance market.”

Quadency

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