DeFi Must Go Beyond Traditional Finance

DeFi Must Go Beyond Traditional Finance – A Call to Action

This article explores the current state of Decentralized Finance (DeFi) and emphasizes its dependency on Traditional Finance (TradFi). While DeFi was designed to create an inclusive financial system, it still heavily relies on traditional infrastructures like banks and payment networks. This reliance undermines its original mission to serve the unbanked and calls for a more profound transformation aimed at building a truly inclusive financial ecosystem.

Key Takeaways

Dependency on TradFi: DeFi has not replaced traditional finance; rather, it has become intertwined with it, relying on traditional banking systems for stability and legitimacy.
Unbanked Challenges: The primary obstacle for the unbanked isn't merely a lack of access to DeFi products, but the absence of reliable infrastructure such as identity verification and payment systems.
Need for New Infrastructure: For DeFi to genuinely serve populations excluded from traditional finance, it must innovate infrastructure beyond its current models, focusing on accessibility and reliability.
Future of DeFi: The next phase of DeFi should prioritize building new financial rails instead of merely optimizing existing systems. True progress will require moving away from dependency on traditional finance and into foundational changes.

For the unbanked, DeFi remains distant, abstract, and mostly inaccessible — not because the technology is bad, but because the rails are traditional finance.

Rethinking DeFi's Role in Finance

Decentralized finance (DeFi) attempts to tell a straightforward story: billions of people are unbanked, traditional finance is slow and biased, and DeFi is the solution that will bring financial services to everyone. While this narrative is compelling, it's not entirely aligned with reality. After five years of rapid development, DeFi has created a remarkable alternative financial system, yet it remains heavily dependent on the very traditional infrastructure it aims to replace. New products have been built, but the foundational rails have not changed.

Current State of DeFi: A Closer Look

In the present DeFi landscape, stablecoins like Tether and USDC are critical for on-chain transactions. However, these stablecoins are primarily backed by assets held within traditional financial institutions, such as bank deposits and Treasury bills. Furthermore, access to fiat currency and transactions is governed by regulated intermediaries, who control user access. On top of that, price data is gathered from centralized exchanges, and user experiences are mediated by existing app stores and payment networks.

DeFi’s promised to replace TradFi, not sit on top of them | Opinion - 1 Source: Coingecko

This observation is not aimed at critiquing individual projects; rather, it reveals a fundamental issue. DeFi hasn't dismantled traditional finance; instead, it has effectively wrapped it, delivering efficiency and new structures primarily to those who already have access to capital and legal protections. For the unbanked, DeFi feels abstract and far removed from their realities—not due to technological shortcomings, but because the foundational elements of the system remain unchanged.

Infrastructure: The Core Challenge

The challenges facing the unbanked are not strictly product-based—they are fundamentally infrastructural. Individuals who lack banking services usually do not have reliable identities, internet connectivity, secure payment methods, or means to resolve disputes. They exist in unstable economic environments where access and documentation are inconsistent.

Contrarily, DeFi operates under assumptions of stability: reliable internet, electricity, identity, and the ability to obtain stablecoins through regulated channels. These assumptions often go unnoticed by those within the industry but are critical barriers for those outside it.

This situation arises partly because the industry took the easiest path forward. Instead of reconstructing financial systems from the ground up, it focused on achieving speed and efficiency in already established networks. Rather than supplanting banks, DeFi has integrated with them, reflecting existing markets rather than redesigning them. This strategy, while practical for survival, has fostered a dependency.

Today, DeFi doesn't simply interface with traditional finance; it is significantly connected. Its stability and growth depend on the health and cooperation of the traditional financial system, which can often be unpredictable. Tightened regulations, banking failures, and institutional reluctance can all stifle DeFi's growth.

Recognizing the Dependency

This does not represent true decentralization; it resembles a form of financial dependence with a more user-friendly interface. This acknowledgment of dependency presents a strategic limitation for the industry. As long as DeFi remains reliant on traditional financial systems for its basic components—money, identity, pricing, liquidity, and access—it cannot effectively serve those excluded from traditional finance. It merely repackages existing financial structures for those already within the system.

Consequently, DeFi adoption primarily mirrors wealth distribution, benefiting traders, financial institutions, and tech enthusiasts, while failing to reach small vendors or families in developing regions. The uncomfortable reality is that DeFi has optimized for capital, not human needs.

The Path Forward for DeFi

Revamping financial infrastructure is not an easy task; it is often dull and politically complex. It requires establishing payment systems that do not rely on bank accounts, creating identity verification methods that are independent of government oversight, and developing custody models that don't expect technical expertise from users. New forms of credit that bypass traditional financial histories are also essential. Additionally, building legal and social frameworks that can accommodate errors, fraud, and failures is necessary.

The work needed for this transformation may not be flashy or instantly rewarding; it doesn't generate trending topics or immediate liquidity. However, it is critical, as all other efforts in DeFi will be meaningless without it.

Finance fundamentally shapes who can save, borrow, invest, transact, and plan for the future. These outcomes are not God-given; they arise from systems that merge technology with law, institutions, culture, and human interaction.

Although DeFi has excelled in technological advancements, it still needs to engage more thoroughly with these other dimensions. Thus, the next evolution of crypto will hinge on whether the industry is prepared to step out of its comfort zone—away from financial hubs, big capital, and regulatory loopholes—and commit to the essential yet unglamorous work of establishing robust infrastructures in underserved areas.

This requires a shift: not merely creating more wrappers, mirrors, or extensions of existing systems—rather, building essential financial rails. Until this goal is achieved, the industry must reflect honestly on its progress. DeFi hasn't failed but has yet to tackle the core challenges it was designed to address. While it has established a faster financial structure, it hasn't produced a fairer one. This remains the work that truly lies ahead.