Defi needs some fine-tuning before it can replace banking as we know it

Traditional banking has often been scrutinized and seen as somewhat villainous due to its rigidities, predatory practices, and opaque systems. However, it’s integral to our societal structure, serving as the backbone for managing money in our day-to-day lives. And while they may be vilified and demonized, banks are still largely the most trusted place to store your money and put it to work. That could soon change.

Over the last few years, recent developments have challenged this established norm, and the public has questioned whether they should explore banking alternatives tailored to the digital age. People are growing more interested in an experience where transparency and value are not just catchphrases but foundational pillars of the service.

The rise of cryptocurrency has paved the way for decentralized finance to be transformative in the financial landscape, promising enhanced accessibility and fair financial solutions compared to centralized banking models. Defi’s general idea revolves around reimagining traditional financial systems in a decentralized manner, aiming to provide inclusive, transparent, and permissionless financial services to anyone, at any time. It’s a noble goal, but any crypto enthusiast can attest to how difficult it is to make this a reality.

While DEXs are a significant step towards a decentralized system, they often fall short of embodying the full vision of what a bank can offer in terms of providing comprehensive financial services. Praised for facilitating peer-to-peer trading without relying on centralized authorities, DEXs, in truth, aren’t fully decentralized yet.

Although trading might be decentralized, DEXs have been criticized for lacking the necessary functionalities. Issues such as liquidity fragmentation, price volatility, and user experience limitations still persist, hindering the seamless adoption that these projects are working to achieve, even if it is just for trading. 

To fully provide equal opportunity to all users and compete with centralized exchanges, which are typically easier to navigate, defi must continue adapting and creating solutions to move projects from ideas to operational. 

As investors continue to seek wealth-building opportunities within crypto, DEXs find it more difficult to provide the liquidity necessary to facilitate smooth trades. This gap requires decentralized exchanges with enough funds at their disposal to support a transparent and secure operation. For example, stabble, a DEX on Solana, has taken steps to augment the Automated Market Maker (AMM) model. It distinguishes itself by allowing liquidity providers to engage in internal and external arbitrage trading while addressing issues like impermanent loss and low returns for liquidity providers. 

DEXs like stabble highlight efforts to enhance user experience within the defi ecosystem. By integrating advancements like smart order execution and smart liquidity routing, these platforms don’t just attract liquidity providers but promote a trusted and secure trading environment. Such developments contribute to the maturation of defi, pushing the boundaries of what DEXs can achieve for users. 

While it will be a long time before traditional banking is replaced, defi’s emergence and growing use represent a shift in finance, promising greater autonomy and accessibility for a broader demographic. However, for DEXs to thrive, they must continue evolving, specifically through enhanced liquidity and transaction speeds to effectively compete with centralized exchanges.