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DeFi will not replace the financial system, this is just a dream, says S&P report

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Anyone who believes that BTC will replace the dollar, that the DeFi market will do away with the traditional financial system, that the NFTs will do away with print art, or that the metaverse will do away with physical society, is wrong.

This is what S&P Global stated in a recent report. The world’s analytics giant published a document focused on the DeFi sector and highlighted that these technologies will coexist with current financial, monetary and social systems.

According to the company, there will not be a substitution of one for the other, but a coexistence between both.

According to the Global Credit Outlook for 2022 study, the traditional industry will need to innovate to stay relevant:

“We believe it will continue to evolve into 2022 to complement the current financial system rather than replace financial services companies. To remain relevant, we believe historic players will have to further increase investments in new technologies. Otherwise, the balance could deviate from them in the long run.”

DeFi will not replace the financial system

While most decentralized financial applications aren’t competing with traditional finance at the moment, the report says the situation could change in the future.

“Most DeFi apps (dApps) currently don’t compete with competitors. They are still mostly restricted to transactions within the emerging digital ecosystem. For example, for the purchase, exchange, loan or insurance of digitally native assets. But that can change with the evolution of technology and acceptance.”

Also according to the report, the most profitable activities in the traditional sector are the ones that suffer the most interruptions.

“DeFi’s potential is greatest in higher cost activities, which generally provide higher margins for incumbent operators. If DeFi captures a large portion of the existing liquidity, it could also change the funding profile of incumbents.”

In this regard, S&P Global highlighted that ignoring this trend could lead to future problems. However, the company points out that there are still a few years left for this to happen since DeFi is still in its “infancy”.

Finally, the report says that regulatory progress in 2022 could bring more players to DeFi.

“Progress in the regulatory debate can both frame and spur growth in 2022. Regulatory progress is a precondition for many traditional players to enter some DeFi activities with confidence and compete with players native to this ecosystem.”

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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