How Blockchain Changes Traditional Finance (TradFi)

Why Financial Institutions Are Adopting Blockchain?

For decades, Traditional Finance (TradFi) have reliably met a wide range of market needs. However, they face serious structural challenges - major cost drivers today include technology infrastructure, regulatory compliance, and risk management. Meanwhile, decentralized finance (DeFi) offers an rapidly evolving alternative that promises greater efficiency, transparency, and inclusivity.

Although DeFi remains largely unregulated, its decentralized, open-source protocols promise major shifts in how financial services operate.

Key Blockchain Concepts in Today’s Financial Markets

Blockchain’s origins trace back to 1991, when Stuart Haber and Scott Stornetta proposed a tamper-proof, time-stamped digital ledger. At its core, blockchain is a decentralized, immutable database maintained by a peer-to-peer network rather than a central intermediary.

• Decentralization ensures no single party controls the ledger.
• Immutability guarantees that once data’s recorded, it cannot be altered.
• Smart contracts are self-executing programs on the blockchain that automatically enforce agreed terms.

Blockchains can be distinguished according to:

• Public (permissionless) networks, like Ethereum and Bitcoin, allow anyone to read and write, but process transactions relatively slowly.
• Private (permissioned) networks restrict participation to known entities, enabling far higher throughput.

How Does Blockchain Ensure Transparency and Security?

In traditional financial systems, transaction records are stored in isolated ledgers, maintained by custodians, correspondent banks, and internal accounting platforms, which requires extended verification periods and manual audit procedures. In contrast, the DeFi blockchain enables:

• Real-time monitoring: Anyone can view token flows and smart-contract activity live on a blockchain explorer.
• Lower audit costs: Standardized, machine-readable records reduce manual sampling and data normalization.
• Reduced settlement risk: Atomic transactions ensure that asset transfers and payments occur simultaneously.

How Does Blockchain Reduce Costs and Boost Operational Efficiency?

Every large intermediary still employs sizable back-office and treasury teams to verify transactions, manage funding, and fulfill compliance obligations. In contrast, IMF research finds that DeFi protocols carry extremely low marginal labor costs. TradFi firms are already piloting:

• Outsourced settlement via on-chain netting
• Workflow automation with smart contracts
• Programmatic compliance reporting using auditable ledger entries

These measures could reduce TradFi’s cost base by up to 30% over five years.

Traditional banks may levy fees of up to $30 outbound and $15 inbound. In contrast, on-chain transaction fees, calculated solely on computational complexity, remain almost constant regardless of amount, averaging as little as $0.0075 on Solana, $0.16 on Base Layer 2 networks, and $5.65 on Ethereum over the period from January 2024 to January 2025.

Source

What Makes Blockchain Ideal for Tokenizing Assets?

Asset tokenization is an essential feature in DeFi. By implementing a dedicated token contract, one can represent any other on- or off-chain asset on a given DLT platform. Tokenization allows these assets to be split and develop new business models, examples include:

• Bonds and U.S. Treasuries: On-chain pilot projects enable instant settlement and multilateral netting.
• Real estate: Fractional ownership of property lowers entry barriers and widens investor pools.
• Stablecoins: Their goal is to stabilize the price and volatility of a token by pegging their value to some external reference asset.

Stablecoins like USDC and USDT further reduce resource costs by eliminating the need to convert back to fiat for payments or collateral. Stablecoins do not require conversion back to the underlying medium of exchange, they’re transferable and fully fungible on-chain.

Why Choose Decentralized Trading Platforms over Centralized Ones?

Decentralized exchanges (DEXs) are DeFi protocols that enable the programmatic trading of cryptoassets. Their architectures typically follow one of two paradigms: order‐book–based DEXs, such as 0x and EtherDelta, which mirror the matching mechanisms of centralized platforms, and Automated Market Maker (AMM)–based DEXs.

By early 2025, DEX trade counts on Solana exceeded 30 million monthly transactions, with over 8 million unique traders and daily volumes north of $30 million.To better understand how decentralized trading compares with traditional finance, let’s look at two representative platforms: Uniswap, a leading decentralized exchange, and the New York Stock Exchange (NYSE), the world’s largest traditional securities exchange.

The first major difference between the two exchanges is the centralization of governance.On the one hand, the NYSE is a completely centralized entity, with a traditional governance,directed by a board of designated persons. On the other hand, Uniswap is completely decentralized and offers the possibility, via its governance token, to give any holder the rightto contribute to the governance of the decentralized company actively or passively. In terms of securities exchange, Uniswap works exclusively on the principles of smartcontracts. This is a big difference with the NYSE, which requires the intervention of a brokerand market makers to operate. Therefore, there is no middleman to place trades on Uniswapand the user of the platform directly exchanges his securities through his own Ethereum portfolio.

Why Are Hybrid Finance Models the Future of Financial Services?

Rather than a zero-sum takeover, TradFi and DeFi are converging into Hybrid Finance. According to recent survey data:

• 76.3% of financial firms are already engaged with crypto or digital assets.
• 11.3% have launched live products; 9.3% are running pilots; 22.7% are researching or exploring.

However, 52% cite regulatory uncertainty-fragmented laws and evolving guidance, as the primary barrier to deeper DeFi adoption. As global regulators clarify frameworks, we expect:

• Tokenization of new asset classes including FX forwards, insurance contracts, and syndicated loans.
• Interoperability standards that enable seamless asset transfers across blockchains and legacy systems.
• “Finance-as-a-Service” platforms offering modular, on-demand DeFi services integrated into traditional banks’ digital offerings.

For institutions and investors, these hybrid models unlock enhanced liquidity, lower capital charges, and novel yield opportunities once reserved for specialized platforms.

Can Decentralized Finance Fully Replace Traditional Finance?

DeFi enables broader access to financial services, improves capital efficiency, and democratizes market participation.

However, to ensure its long-term sustainability and integration into mainstream finance, regulatory clarity and compliance are essential.

At Degen House, we see this shift firsthand, working with builders, supporting ecosystem growth, and helping the next generation of projects align with both innovation and responsibility. DeFi isn’t just the future, it’s something we’re helping shape today.

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