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DeFi's Transformative Influence on the Global Financial Landscape

DeFi's Transformative Influence on the Global Financial Landscape

V. Saravanakrishnan (Christ University, India), M. Nandhini (Karpagam Academy of Higher Education, Coimbatore, India), and P. Palanivelu (Karpagam Academy of Higher Education, Coimbatore, India)
Copyright: © 2024 |Pages: 22
DOI: 10.4018/979-8-3693-1762-4.ch006
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Abstract

The rise of decentralized finance (DeFi) has fundamentally reshaped the financial industry, challenging traditional banking systems and opening up a world of possibilities in global finance. This chapter explores the multifaceted impact of DeFi on the global economic landscape, addressing critical themes through a series of subtitles. DeFi is disrupting traditional banking models by offering alternative financial services directly on blockchain networks, such as lending, borrowing, and trading. One of the remarkable achievements of DeFi is its ability to provide financial services to previously underserved and unbanked populations. Tokenization is a crucial aspect of DeFi, enabling the representation of real-world assets as digital tokens on the blockchain. DeFi offers numerous advantages but poses security challenges, including smart contract vulnerabilities and hacks. This chapter provides an overview of the major themes and implications of DeFi's influence on finance, highlighting its opportunities and challenges.
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1.1 Defining Defi: A Revolution In Finance

DeFi is a blockchain-based financial ecosystem that aims to democratize and transform the way financial services are conducted. It uses the principles of decentralization, transparency, and immutability to build open-source platforms and financial protocols (Schär, 2021).

The conventional structure of global finance comprises banks, insurance firms, and brokers. DeFi takes a different approach. According to Wieandt & Heppding (2023), it uses blockchain technology Instead of relying on centralized intermediaries to establish an independent financial system.

Instead of intermediaries, DeFi uses smart contracts, which are self-executing codes on a blockchain (Koulu, 2016). These allow users to perform various financial transactions, such as asset management and lending, without requiring a traditional bank account. Through a decentralized system, users can lower their costs and improve their accessibility (Chen & Bellavitis, 2020).

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