TradFi, or Traditional Finance, refers to the established financial system, including banks, stock exchanges, and other conventional financial institutions. It contrasts with decentralized finance (DeFi), which uses technologies like blockchain for financial operations.
What is TradFi?
Established financial system:
TradFi is the traditional financial system we have known for decades, with institutions such as banks, stock brokers, investment funds, and insurance companies.
Intermediation:
The TradFi system involves the intermediation of financial institutions to facilitate transactions and investments.
Regulation:
TradFi institutions are generally regulated by government bodies, aimed at ensuring stability and consumer protection.
Limitations:
TradFi may present some limitations, such as higher operational costs, slower settlement times, and greater difficulty of access for some investors.
Examples of TradFi institutions:
Banks, Stock brokers, Investment funds, Insurance companies, Stock exchanges.
TradFi vs. DeFi:
TradFi: Traditional financial system, centralized and regulated.
DeFi: Decentralized financial system built on blockchain, focusing on smart contracts and more open access.
Despite the growth of DeFi, TradFi remains a crucial component of the global financial system, with established institutions and regulations. Despite some criticisms, such as lack of innovation and difficulty of access, TradFi offers security, stability, and an already consolidated structure.