Written by: zacharyr0th, Aptos Labs
Compiled by: Alex Liu, Foresight News
Real-World Use Cases of DeFi
The traditional banking system remains the foundation of finance, but has long been plagued by systemic risks, regulatory failures, and conflicts of interest.
Decentralized Finance (DeFi) offers access to permissionless financial tools — featuring censorship resistance, borderless use of stablecoins, and transparent yield generation.
The future financial landscape will emerge from a pragmatic fusion of traditional institutions and decentralized infrastructure.
The global financial system is built on a vast network of intermediaries, processing trillions of dollars in transactions every day. This architecture has historically supported global trade and capital flows but has also led to bottlenecks, inefficiencies, and systemic risks.
Technology continues to advance, but traditional institutions remain deeply entrenched, both operationally and politically and socially. Some institutions are seen as 'too big to fail', while others silently go bankrupt. Despite many institutions having prominent reputations, their histories are marred by regulatory violations and unresolved conflicts of interest.
These phenomena reflect a deep-seated systemic issue — not just inadequate regulation, but a design flaw.
Worse still, the lines between regulators and the regulated are often blurred. Former SEC Chair Gary Gensler worked at Goldman Sachs for 18 years before regulating Wall Street; Federal Reserve Chair Jerome Powell accumulated considerable investment banking wealth before formulating monetary policy; former U.S. Treasury Secretary Janet Yellen received over $7 million in speaking fees from financial institutions she later had to regulate.
Indeed, the expertise between the public and private sectors can be compatible, but this 'revolving door' phenomenon is not new; it has almost become the norm.
The Mission and Operating Mechanism of Central Banks
In 1913, after a series of bank runs, the Federal Reserve was established. Designed by financiers like J.P. Morgan, the Federal Reserve is a quasi-governmental agency: theoretically accountable to Congress, but in practice operates independently.
In 1977, the dual mandate of the Federal Reserve was officially established:
Maximizing Employment
Maintain price stability (currently interpreted as an inflation rate of about 2%)
Although monetary policy is constantly evolving, its main tools remain the same: interest rate adjustments, balance sheet expansion, and open market operations.
Since 2012, the Federal Reserve has explicitly set a 2% annual inflation rate as its target, which has had widespread implications for asset values and the purchasing power of the dollar. Long-term historical trends show a steady decline in interest rates.
As the financial system becomes increasingly complex and interconnected, borrowing costs continue to decline.
Value and Perception
Since 2008, the correlation between the Federal Reserve's balance sheet and the S&P 500 index has increased, raising questions about the long-term effects of monetary expansion.
Some believe that the U.S., leveraging its global dominance, can 'print money freely' with minimal consequences; the dollar's status as a reserve currency and global trust in U.S. institutions provide a buffer against inflation erosion. But not all countries enjoy this privilege. In many parts of the world, especially where goods and services are not priced in dollars or euros, DeFi is not optional but essential.
In developed economies, people can discuss the theoretical benefits of decentralization; but for billions in underdeveloped regions, they face real issues that traditional banks cannot or will not solve: currency devaluation, capital controls, lack of banking infrastructure, and political turmoil. These require solutions outside the traditional system.
Stablecoins and Anti-Inflation
Between 2021 and 2022, Turkey experienced severe economic turmoil, with inflation rates reaching as high as 78.6% year-on-year.
For the general public, local banks may not provide effective responses, but DeFi can. Through stablecoins and non-custodial wallets, individuals can avoid asset devaluation, engage in global transactions, and circumvent unjust capital controls — all achieved through open-source tools accessible to everyone.
These wallets do not require bank accounts or cumbersome paperwork; they only need a private key or mnemonic phrase to access on-chain accounts.
Censorship Resistance
The bank accounts of many truck drivers protesting at the U.S.-Canada border were frozen by authorities, preventing them from repaying loans or buying essentials — even though they had not violated any specific laws.
In a centralized system, financial autonomy is not a given, whereas DeFi offers a different model: built on open infrastructure, governed by code, rather than regional policies.
Returns and Innovation
DeFi protocols redefine financial primitives: lending, trading, insurance, etc., but these innovations come with new risks.
Some protocols have collapsed, and malicious actors have been exposed, but the market naturally sifts through sustainable innovations. Survivors — such as automated market makers (AMMs) and liquidity pools — represent best practices in DeFi: building transparent, permissionless infrastructure, distributing transaction fees to liquidity providers, rather than concentrating market-making profits in the hands of a few gatekeepers.
This is a fundamentally different model from traditional finance — access to traditional markets, especially in market-making, is highly restricted and lacks transparency.
A Balanced Future
At least in the short term, the future of finance will not be fully decentralized nor fully centralized, but a hybrid form. DeFi is not a complete replacement for traditional finance, but it does fill the gaps neglected by the traditional system: accessibility, censorship resistance, and transparency. In economies troubled by regional inflation or financial repression, DeFi is already addressing everyday issues.
In countries like the United States, where the banking system is safer, the value proposition of DeFi also holds, but is more theoretical. For most people in stable economies, traditional banks still offer convenience, consumer protection, and reliability that DeFi has not yet fully matched. Once traditional financial infrastructure is upgraded to a blockchain-based settlement layer, this theory will gradually become reality.
Before that, some will pursue financial sovereignty, some entrepreneurs will build on the frontier, and some savvy funds will use DeFi primitives to achieve higher risk-adjusted returns — of course, accompanied by a plethora of meme coins and airdrop activities.
What do others think?
“The goal of DeFi is not to compete with traditional finance, but to create an open and accessible financial system that complements existing infrastructure.” — Vitalik Buterin, co-founder of Ethereum
“DeFi protocols represent a paradigm shift in financial infrastructure, offering programmable, transparent alternatives to traditional financial services.” — Dr. Fabian Schär, Professor of Distributed Ledger Technology at Basel University
“While DeFi platforms may offer promising technological innovations, they still need to operate within a framework that protects investors and maintains market integrity.” — Former SEC Chair Gary Gensler
Why DeFi Matters
In a world of economic volatility and institutional distrust, decentralized systems are gradually demonstrating capabilities: enhancing traditional payments and financial operations through new properties of blockchain.
The architecture of DeFi — permissionless, global, transparent — unleashes new financial freedoms, breaking down barriers of geography, identity, and institution. Smart contracts automate complex processes, lower costs, and eliminate friction, which traditional infrastructure cannot achieve.
Risks still exist, but progress is also being made.