What is the difference between traditional and decentralized finance (DeFi)? The main difference is how they work.

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Traditional financial systems work with centralization, and this brings inefficiency and insecurity. Security risks are persistent in today's traditional financial system. Cyber crime is also experiencing an increase due to the lack of evolution of the technologies used by a financial institution. Most transactions are at risk of being hacked. All of this carries both financial and data risks.

DeFi, on the other hand, ensures that problems are fixed to some extent. In essence, DeFi uses a public blockchain, which means that it does not depend on a centralized system or entity.

It can work without the need for adequate infrastructure. It simply decentralizes the world economy and provides viable economic activity for everyone around the world. Public blockchains can be used effectively to replace the traditional financial system and make them transparent, decentralized, and permissionless.

DeFi is also changing the focus of established institutions by bringing decentralized solutions into play, which for the first time create competition in the financial industry.

Regarding financial instruments and their trading, most of the current activity is carried out on centralized platforms that are not an improvement on what already exists in traditional markets. On top of that, these centralized exchanges have a head start as they have low latency, low fees, and high liquidity.

If DeFi applications want to compete with them directly, we must address these issues and / or find niche markets and products where some of the criteria mentioned above are not as crucial for the market in question.