According to the S&P Global Report, decentralized finance will not replace the traditional financial system

Decentralized finance (DeFi) will complement rather than replace the traditional financial system in 2022, according to a report by financial information and analysis provider S&P Global.
According to the company’s Global Credit Outlook 2022, the traditional financial sector needs to innovate and invest in the next twelve months to stay relevant.

“We believe that in 2022 it will evolve to complement the current financial system, rather than replace financial services companies.

In order to remain relevant, we believe that the established players have to increase their investments in new technologies – otherwise the equilibrium could shift away from them in the longer term. “

While most decentralized finance applications do not currently compete with traditional finance, the report states that the situation may change in the future.

“Most DeFi applications (DApps) are currently not competing with established providers.

They are mostly still limited to transactions within the emerging digital ecosystem – for example, for buying, exchanging, lending or insuring digital native assets.

But that could change as technology and adoption evolve. “

According to the report, the most profitable activities in the traditional financial sector are most disrupted.

“DeFi has greater potential in higher-cost activities that often offer incumbents higher margins.

If DeFi captures a large chunk of existing liquidity, it could also change the funding profile of incumbents.

Ignoring this trend could result in a difficult wake-up call in the future, although we think this will take a few more years as DeFi is still in its infancy. “

The report also says regulatory advances in 2022, if imminent, could bring more traditional financial system players into DeFi.

“Advances in the regulatory debate could both frame and fuel growth in 2022.

Regulatory advancement is a requirement for many traditional players to confidently participate in some DeFi activities and compete with players who are native to this ecosystem. “

Read the full S&P Global report here.
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