The coming of Decentralized Finance (DEFI) in the crypto space was welcomed very fast because of the several opportunities it offers especially when it comes to financial growth. Presently, a major percentage of crypto lovers are leveraging on the several opportunities offered by DEFI in generating rewards for themselves and growing financially.
Many crypto lovers praise DEFI, setting it out from the traditional financial system because it has been seen as the best way to grow financially.
BUT IS DEFI REALLY DIFFERENT FROM THE TRADITIONAL BANKING SYSTEM?
To answer this question, it is good to reflect on how the traditional banking system works, and then compare it with the Decentralized Financial system.
The traditional banking system operates rewarding services such as a Fixed deposit account, where an account holder fixes a certain amount of money over a fixed period and generates interest for himself. The interest can be paid into the person's account on monthly basis or at the end of the fixed period. They also operate a saving system where one can withdraw his money at any time but earns more interest if he leaves the account untouched for a stipulated period. People can also lend and borrow in the traditional banking system. The interest one earns here, is a function of the amount he used for any of the rewarding systems.
Decentralized Finance offers crypto investors the opportunity to earn rewards from their crypto assets. It can either be through staking of the asset, lending the asset out, or supplying the assets to validators. What an investor earns depends also on the amount supplied.
What do they have in common?
When you look at both systems, you will discover that you need funds to benefit from any of them. You need crypto assets to benefit from any Defi services and you need cash to benefit from the traditional banking system.
The only difference between the two systems is the fact that Decentralized Finance (DEFI) through the help of blockchain removes the restriction on money flow, unlike in the traditional system where protocols are to be followed before any financial transaction is made. One can comfortably interact with DEFI services right from the comfort of his home. This is not possible with the traditional banking system, a lot of bulky papers are to be signed. Also, the interest rate in DEFI is very much higher than what we see in the traditional banking system.
Both systems are indeed ways of growing financially, but the growth system is still the same. No one can leverage any of them without funds. This is where the indifference comes in. New crypto lovers who love Defi are not able to benefit well from the amazing features of Defi without having start-up capital. They may only be able to use decentralized platforms like Hive, Torum, noise. cash, read. cash, etc to generate rewards for themselves which they can use for Defi services.
The bottom line is that DEFI might be a good way to grow one's finance but it is not completely different from the traditional banking system in terms of the rewarding criteria. Your output is a function of your input in the system.