Impact of Decentralized Finance (DeFi) on Traditional Banking Models: A Blockchain Perspective

Abstract

The banking sector is disrupted by the development of Decentralized Finance (DeFi) based on blockchain technology. DeFi provides permissionless, trustless, and programmable services. This article looks at how DeFi is changing the traditional banking sector from a blockchain viewpoint. DeFi both threatens and offers opportunities to conventional banks by eliminating middlemen, lowering costs of transactions, improving financial inclusion, and facilitating real-time asset settlement. For this research, we use a unique approach combining financial network modeling and smart contract analysis to measure the efficiency, security, and scalability of DeFi protocols compared to centralized banking systems. While the findings suggest that DeFi could be more accessible, efficient, and open than existing financial infrastructures, they also show that there are real problems with regulation, security, and systemic risk. This work adds to our knowledge of the changing dynamics between traditional finance and DeFi by providing a blockchain-based model for the potential interplay between these two paradigms in the future.