Is decentralized finance a better alternative to traditional finance?

Abstract

This study examines the prospects and challenges of Decentralized Finance (DeFi) as a potential replacement, complement, or disruption to traditional finance. Through a thematic analysis of expert interviews, the study highlights the innovative benefits of DeFi, such as its accessibility, cost efficiency, transparency, and programmability. However, it also identifies several limitations including security vulnerabilities, scalability issues, user complexity, and educational gaps. While DeFi offers a groundbreaking approach to financial systems, the current lack of regulatory oversight, security concerns, and universal accessibility prevent it from being a direct replacement for traditional finance. Instead, it is posited that DeFi could act as a complementary system, potentially disrupting traditional financial practices and forcing its evolution. Moreover, DeFi could help traditional finance address its long-standing limitations, leading to the integration of both systems, thereby yielding a more robust, inclusive, and efficient financial system. Nonetheless, the sector faces significant challenges, particularly regarding security, risk management, and the need for regulatory standards. Both DeFi and traditional finance possess their own strengths and weaknesses, hence, an ideal financial system could lie in the coexistence and integration of both, subject to a supportive and adaptable regulatory environment.