How DeFi Will Impact the Banking Sector

3 min readJun 22, 2022

Today, most financial transactions are conducted without the use of physical cash. Transactions are done online via fintech solutions, reducing the reliance on physical banknotes for everyday business. While online banking enables a faster and seamless means of doing business, the system is centralized. It also involves third-party players, slowing down the process of transactions and increasing the cost of doing business.

Decentralized finance, DeFi, is an emerging financial technology that redefines how money moves around the world. It is built on the blockchain network, a decentralized framework that involves peer-to-peer architecture and cryptography. DeFi is taking the financial sector further by eliminating central authorities from transactions and introducing new possibilities that did not exist in the traditional economy.

Decentralized Finance in the Banking Sector

Envision a world in which DeFi is intertwined with the banking sector; this opens the door to various financial utilities. Beyond eliminating intermediaries and reducing the cost of business, DeFi will create a new income avenue. It will make banking affordable and accessible for the masses and lower the bar for the unbanked population.

This will eliminate third parties by allowing individuals, merchants, and enterprises to execute financial transactions using new technology via peer-to-peer financial networks that employ security standards and connectivity advances.

Transparency Immutable Seamless

Data recorded on the blockchain is public and can be accessed by anyone with an internet connection. This feature of blockchain makes DeFi a transparent means of banking. With its siloed financial systems, the traditional banking sector creates room for corruption. The trust-based system of the traditional banking sector poses a greater risk than smart contract-based decentralized finance.

Security is one of the challenges faced by the financial sector. Users trust their banks to secure their financial assets. Banks, however, are central entities with a single point of failure. With DeFi, assets are secured on a decentralized database. Blockchain platforms like 5ireChain use state-of-the-art security protocols like homomorphic encryption to secure its database. This confers a level of security that is not seen in traditional banking.

In today’s banking sector, transaction processes are immersed in countless bureaucratic procedures. This makes transactions slow and expensive. Furthermore, today’s banking system requires a series of verifications and know-your-customer protocols before granting access to financial services. While literate users can mingle through these processes, the case is not the same for the uneducated population. This raises the bar high for the latter category of users.

DeFi is a great tool that can be used to reduce the gap between the banked and the unbanked. It creates a seamless procedure for onboarding users.

Possibilities Created By DeFi


DeFi users can deposit their tokens in a lending pool and earn passive income.


Just like in traditional banking, users can borrow money. However, in DeFi, the processes involved are simple and flexible.

Liquidity Mining

Liquidity mining allows DeFi users to earn from their digital assets when they contribute to liquidity. Depositing money into a liquidity pool entitles users to a share of gas fees generated on the platform.


Decentralized finance is a revolutionary technology pioneered by blockchain technology. It is poised to transform the banking system. While DeFi is still in its early stages, the technology has the potential to explore new horizons in the world of banking and finance.

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