What is TradFi and DeFi?

Traditional Finance, often abbreviated as TradFi, is the conventional financial system, like banks, hedge funds, brokerages, etc. It’s characterized by a high degree of centralization, lack of transparency, high transaction charges, censorship, and exclusion of retail investors from financial services. On the other hand, Decentralized Finance or DeFi is a collective term for multiple applications and projects built on blockchain technologies, characteristically leveraging smart contracts. Smart contracts are automated, self-executing if/when agreements, which anyone with a stable internet connection can freely access. Generally, DeFi is an emerging technology designed to revolutionize TradFi by ensuring transparency and financial inclusion.

Simply put, TradFi (traditional finance) is the current financial system we use, which is primarily based on banks, government-issued fiat money, and centralization. Decentralized finance, or DeFi, is an emerging financial technology that uses blockchain technology (i.e. the tech behind cryptocurrencies), and it's changing the way we think about finance today. In short, DeFi seeks to replace TradFi, with some of its pillars being transparency, decentralization, and autonomy.