TradFi

Traditional Finance, often abbreviated as TradFi, represents the well-established financial system that individuals commonly engage with in their day-to-day financial activities. For instance, products such as savings accounts offered by licensed and regulated banks are emblematic of TradFi. It encompasses a broad spectrum of financial services, including mortgages, bank loans, foreign exchange services, and investment opportunities facilitated by retail, investment, and commercial banks.

The term TradFi is frequently employed within the blockchain and crypto landscape for comparison with DeFi (decentralized finance) products and services, which operate through smart contracts and blockchains. This juxtaposition underscores a significant contrast between TradFi and DeFi. TradFi is commonly perceived as centralized, characterized by higher barriers to entry, while DeFi provides decentralized services leveraging smart contract authority and is open to anyone with a crypto wallet and sufficient crypto funds.

In addition to the comparison with DeFi, TradFi can also be contrasted with CeFi (centralized finance). CeFi provides services similar to those offered by DeFi but is accessed through centralized exchanges. CeFi shares similarities with TradFi specifically in terms of how users access their products. CeFi users are required to create accounts with their providers and entrust them with custodianship of their assets, resembling the traditional banking or institutional approach observed in TradFi.