Comparing DeFi to Open Banking Systems


    When people think of taking loans or sending money, what runs through their minds are the traditional banking systems. However, there is an alternative that you need to know about, decentralized finance (DeFi). Although it is an emerging area, it is gaining popularity quickly, and experts indicate that it could become the latest threat to banks. In this post, we take a closer look at DeFi platforms and compare them to traditional banks.

    How Does DeFi Compare to Traditional Banking?

    The design, operations, and benefits that come with DeFi provide a sharp contrast to what traditional banks have to offer. The lovely thing about DeFi is that it is designed to address the shortcomings of traditional banking systems. Let’s take a closer look.

    ●        Management

    The management of DeFi platforms is decentralized. This means that there is no single person or entity that dictates the operations of the system. For example, crypto lending and staking transactions are controlled by smart contracts, which do not require human intervention. The simplified management makes the decentralized finance platforms cheap to use.

    Unlike DeFi, traditional banking systems are managed through centralized systems. Financial organizations must follow a specific hierarchy, including policies set by central banks and political systems, to determine their operations. For example, bank officers must approve money being sent by clients, while the law requires comprehensive background checks before loans are approved. The long bureaucracies make the banking services very expensive.

    ●        Transparency and Anonymity

    DeFi platforms rely on blockchain technology, where transactions are processed by nodes based on pre-set conditions. For example, sending transactions only requires one to have ample coins and provide the right address of the recipient. Once the transactions are completed, the information is captured, time-stamped, and added permanently to the next blocks. Note that the nodes only confirm the balance on the sender’s wallet but cannot know about their personal details. This is the highest level of transparency that you can expect from a finance platform.

    When it comes to the traditional banking system, transactions are open and the details are available to a wide range of parties. For example, the agents, cashiers, bank managers, and the respective financial planners can easily pull out the details. If the information is leaked to people with bad intentions, you can easily become a target for legal suits.

    ●        Control

    The sweetness of using DeFi platforms is that you have all the control over the finances and transactions done with your coins. Here, it is up to you to decide when to transfer funds and how much. Even if you are sending millions across the border, there are no security checks, administrative boundaries, or weekend barriers.

    With centralized banking systems, you are tethered to a host of conditions and, therefore, not in control. When you make an application for a loan, the bank can decline it even when you have collateral. The loan might be disproved because of a poor credit score, recent bankruptcy cases or bad credit history. In some cases, financial services might be declined because you come from another geographical region.

    Advantages of Using DeFi Platforms Over Traditional Banks

    ●        Transactions are completed in seconds.

    ●        Sending funds is cheaper in DeFi platforms compared to banks.

    ●        Transactions are anonymous.

    ●        No background checks are done when processing loans.

    ●        You can access your crypto coins easily from anywhere on the globe.

    ●        There are many products or services, from loans to staking, that you can get from the decentralized finance platforms.

    As you can see, the world is adrift towards DeFi systems, and you should not be left behind. To enjoy all the services that are offered by DeFi platforms, make sure to select the best. This should be a platform that is secure, reliable, and easy to use. One such platform is Mantra Dao. Visit them today to see their services and start using them to enjoy the benefits of blockchain technology.