The global economic structure is supported by the consumer sector that spends and saves their assets. The daily banking activities of these people keep the global financial system up and running. Thus, they are a major part of the whole global structure. The consumer sector uses retail banks to be a part of the system. People use these banks to save or spend their assets, and also to pay off their taxes.
However, the concept of DeFi is challenging these retail banks and an altogether faulty traditional system. The increasing popularity of DeFi has come as a major threat to the supremacy of traditional retail banks. Now, both of these concepts are in a war to win the confidence of global consumers. This tussle between the two giants of the financial structure is set to change the outlook of the monetary world.
The opportunity brought upon by DeFi
DeFi brings tonnes of opportunities with this new model. It delivers a range of unique products that are built through smart contracts. It ensures feasibility and maximizes usability for the consumers, as they can access and control everything through the click of a mouse. This DeFi model is significantly different and better that traditional retail banking. Banks are run by people, and thus, users are always on the verge of being controlled. These traditional banks are often called out for a breach in privacy of the users. Therefore, trusting these banks can come at a huge cost.
However, in the world of decentralized finance, consumers do not interact with individuals, they get the codes for the financial services they acquire. These financial products can work at any hour of the day, unlike the traditional retail banks. It has a high responsive rate and is not dependent on staff of any sorts. In addition to this, users do not have to bear the expenses of checks and balances as well.
The DeFi realm is giving more opportunities to low-scale business individuals and mainly entrepreneurs. They can now compete in the global financial structure without being marginalized by giants and major companies. DeFi also minimizes the costs of services and switching by a great margin. Moreover, it discards the need for any paper work or documentation. Therefore, DeFi is considered to provide a real sense of innovation to the financial world. Plus, if the consumers are getting so many favors and benefits from the DeFi then why would they consider faulty retail banks. It is just a matter of time for DeFi to win over the consumer sector entirely.
Threats posed by DeFi
As we have discussed the perks of DeFi and the revolutionary concept in itself, it is high time to also analyze the threats and risks associated with the decentralized finance. Mainly, the DeFi world is not free from hacks. There have been numerous occasions where cases of cyber attacks and thefts have been reported by many users. According to an estimate, the DeFi on Ethereum has suffered a loss of over $285 million in hacks.
Moreover, users often complain that the rewards on DeFi are not fairly shared. The DeFi on Ethereum is also classified to be more expensive and less effective by the users. For the success of a DeFi platform, it is essential that it can accommodate as many users as possible, because it cannot be congested in any way. In order to replace traditional retail banks, DeFi has to improve its reward sharing system, and also figure out a way to nullify the risks of theft and cybercrime. Only this way, the consumer market will get more inclined towards the concept of DeFi.