Decentralized Finance (DeFi) and Its Impact on Traditional Banking Systems: Opportunities, Challenges, and Future Directions

Abstract

The advent of Decentralized Finance (DeFi) represents a significant innovation in the financial industry, characterized by the use of blockchain technology and smart contracts to offer financial services without traditional intermediaries. This paper examines the growing influence of DeFi on traditional banking systems, providing a comprehensive analysis of how this emergent technology is reshaping financial intermediation. DeFi's potential to offer faster, cheaper, and more transparent financial services challenges the traditional banking paradigm, raising important questions about the future role of banks and the structure of financial markets.

Keywords: Decentralized Finance (DeFi), Traditional Banking Systems, Disintermediation, Smart Contracts, Regulatory Challenges, Consumer Protection, Financial Sustainability