DeFi vs Traditional Banking: Opportunities and Challenges

Decentralized Finance (DeFi) challenges traditional banking by offering financial services without intermediaries through blockchain-based smart contracts. DeFi protocols enable lending, borrowing, and trading with greater transparency and accessibility than traditional systems. However, DeFi faces challenges including regulatory uncertainty, smart contract vulnerabilities, and scalability limitations. Traditional banks possess advantages in regulatory compliance, customer trust, and established infrastructure. This comprehensive analysis examines the strengths and weaknesses of both systems, exploring potential convergence through hybrid models. We discuss how banks can leverage DeFi innovations while maintaining regulatory compliance, and how DeFi protocols can incorporate traditional banking safeguards. The article addresses the future of finance in a world where centralized and decentralized systems coexist and complement each other.