What Is TradFi?
Traditional finance, commonly known as TradFi, is a conventional approach to financial activities that relies on established institutions, regulations, and intermediaries like banks, insurance companies, and stock exchanges. It encompasses various services like banking, investment management, and asset trading.
Key characteristics of TradFi include a centralised structure, where financial transactions are often facilitated through brick-and-mortar institutions like banks. In TradFi, financial decisions are often based on established financial models, theories, and analysis. Traders in TradFi generally follow traditional investment strategies and utilise financial instruments like stocks, bonds, and mutual funds.
Although TradFi has been the dominant financial system for centuries, it faces challenges in terms of accessibility, efficiency, and inclusivity. The advent of technology and digital innovation has given rise to alternative financial systems like cryptocurrency and decentralised finance (DeFi), which aim to address the limitations of TradFi.