DeFi vs Traditional Finance

The global financial system is based on the control of monetary issuance by States. The administration of these assets and the FIAT they represent is exercised by banking institutions and financial intermediaries who support all their infrastructure in centralized systems.

These institutions receive profits for the provision of their services; and citizens, by giving up autonomy over the control of their money, get "the promise" of an effective safeguard and convenient access to their funds.

However, centralized systems are not infallible. Global financial crises have shown that when control is in the hands of few actors, the accumulated risk tends to threaten the stability of the entire system, accelerating its entropy and operational noise, covering the entire environment with the mantle of uncertainty.

Disruption is Imminent

With all the technological advances of exponential reach that we currently have, such as AI, neural networks, blockchain and quantum supremacy, it is totally absurd that the financial system and international banking transactions continue to be supported by a process as slow as that of the PAYMENTS SWIFT, in which payments usually take 2 to 5 business days to reach their destination, but it may take longer due to the time difference between the sending and receiving country, or by the multiple intermediary banks involved To all this chaos we must add the high fees for commissions.

FinTech (Finance + Technology) & DeFi (Dencentralized Finances)

This phenomenon already concerns traditional banking and finance, as Fintech companies are dominating the world of finance in aspects such as: Money transfers, loans, purchase and sale of securities or in financial and investment advice.

Many experts insist that FinTech laid the foundations for DeFi (Dencentralized Finances) and this is very clear to understand and I agree with it, so I will use both terms in an analogous way.

Although broadly we can understand the DeFi as the result obtained from applying the decentralized technology of blockchain platforms to all the advantages offered by FinTech.

"We can define DeFI´s as the construction of an alternative financial system, which works under the concepts of decentralized governance, neutrality, privacy, inclusion, openness and transparency."



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The advantages of DeFi over Traditional Finance are evident:

Flexibility

Government legislation to govern the entire traditional banking system has created an environment that is becoming increasingly bureaucratic and complex that is not easy for ordinary users to understand. However, with the implementation of DeFi, the approach of fintech with the ‘End User’ has been achieved, developing simpler, more flexible and accessible banking processes for almost any person or company, regardless of their size.

Automation

The vast majority of Fintech operate under the SAAS (Software As A Service) format.

This concept allows to automate processes that are traditionally expensive in terms of Human Resources, time and hours of skill, which increases the expenses of the investment for companies and entrepreneurs, in this way the risk represented by the levels of "Error is drastically reduced. Human ", making the return on investment more efficient and increasing confidence levels.

On Line (Real Time)

Since the dynamics of the data product of the investment can be appreciated in Real Time, this allows raising the level of abstraction and awareness for strategic decision making, allowing to analyze the KPI's (Keys Performance Indicator) as they change, with real numbers and without a lag.

This aspect is extremely valuable in the aspect of Finance since a decision taken at the right time can mark the success or failure of a project.

Tokenize Assets

How can we understand this concept more easily? It is very simple!

Imagine a traditional association company where its owners divide the estimated value of all the assets of the company into a certain number of parts of equal value called "shares".

The co-owners of the company are distributed or assigned these "shares" in different percentages, which would bring higher levels of ROI to those with the greatest number of these shares.

The legal aspects of the distribution of these actions and their future reallocation for natural causes or internal decisions must be reflected in the terms and conditions of some internal contract that will establish the legal framework for future disputes.

When we talk about Tokenization, we are adopting a process very similar to the one described above, where the "shares" will now be called "Tokens", which will be distributed among investors who will contribute capital and acquire these tokens.

The ROI will depend on the number of shares or tokens that each investor owns.

The legal guidelines will be established in a smart contract.

"Tokenizing implies the adoption of a blockchain platform that allows the creation of the token and will be responsible for carrying all the charges inherent in the various legal obligations. In this way, DeFi platforms simplify this process and it is easy to understand how this type of structure can potentially be applied to almost anything or assets".

STO's currently represent the strongest and highest level of trust generation when we talk about Tokenizing Assets.

Associating and supporting the value of a token with a real, physical and tangible asset is a very tempting option for potential investors.

Therefore, the tokenization supported by DeFi implies a new concept of ownership, where the collectivization of property rights and allow small savers to make investments (for example, in the real estate sector) which were previously out of their reach .

@juanmolina

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