The birth of crypto was initiated by the concept of a decentralized network that proved to be way better than the existing system of banking. A decentralized finance system does not involve a mediator, and this arrangement is the most significant advantage the DeFi has over our traditional banking system. In the conventional method, you need to take the permission of the provider’s owner for any task.
Traditional banks are filled with errors. You can get your name mispronounced, the address supplied might be wrong, or any other errors, but these are eliminated with a DeFi platform. Any DeFi system is based on a robust algorithm and designed to work without any need for maintenance. The traditional monetary system requires updates at regular intervals.
What Challenges does DeFi Bring?
Nothing comes without a few challenges. DeFi has its issues, and they are yet to be addressed by the majority of the crypto community.
The first issue that DeFi brings to the table is the lack of liquid assets. The majority of crypto exchanges cannot prevent slippage as they take a lot of time running each order that the user gives. It is because blockchain has a scalability issue that no crypto exchange can bypass.
Volatility is a huge factor that affects the efficiency of DeFi. Due to the scalability issue of crypto, everyone is standing at the cliff, not getting an actual transaction. The slow transaction speed disrupts the chain, fluctuating the values, enhancing volatility.
The banking system is backed by the government, whereas very few nations support the existence of crypto. There is no organization out there that provides crypto insurance. Although this is a great idea, hackers and security issues prevent people from stepping up and accepting crypto.