Decentralizing Finance: The Rise of Blockchain in Traditional and Digital Economies

Abstract

Blockchain technology has forced a paradigm shift change with regard to the traditional models of financial intermediation and record-keeping (Catalini & Gans, 2016). Conventional centralized financial structures still face the challenge of transparency, inefficiency, and expensive transactions, which previously restricted the encompassment of finance and innovation (Tapscott & Tapscott, 2017). This work focuses on how decentralized finance (DeFi) systems based on blockchain technology are changing both the digital and traditional economy, eliminating the role of intermediaries and performing peer-to-peer transactions that are controlled by

programmable smart contracts (Schr, 2021). We also create an experimental new version with Ethereum smart contracts simulating automated lending and exchange of assets, which we analyze based on such performance metrics as throughput and the safety of a contract (Chen et al., 2020). The findings indicate that the transaction speed and transparency are considerably higher than the traditional financial processes, and DCS can be considered viable (Gudgeon et al., 2020). Nevertheless, practical restrictions and regulatory challenges are still obstacles on their way to large scale use (Zetzsche et al., 2020). The current study advances the comprehension of how blockchain can help fill the divides between conventional financial structures and new digital asset economies, as well as outlining the future research needs and expanding the subject matter to cross-chain operability and regulatory-absentee DeFi protocols. 

Keywords: blockchain, Decentralized finance, Smart Contracts, Cryptocur-rency,

financial transparency, Distributed ledger, Fintech.