Decentralized Finance and the End of Traditional Banking

3Traditional Finance vs. Decentralized Finance: A Comparative Analysis

Divya Bansal¹ and Naboshree Bhattacharya^2,3*

¹Amity University, Noida, Noida, Uttar Pradesh, India

²Amity University, Jharkhand, Ranchi Jharkhand, India

³ICFAI University Jharkhand, Ranchi Jharkhand, India

Abstract

Traditional finance assumes rational investor behavior employing data and knowledge for informed decisions in efficient markets. The Efficient Market Hypothesis (EMH) supports this view asserting that securities are priced rationally. However, critics argue that investors often act irrationally swayed by greed and fear. The expected utility model describes investor behavior under risk emphasizing utility maximization. Traditional debt, primarily bank loans, is a prevalent choice for small businesses, while alternative finance challenges traditional institutions gaining momentum in lending. Traditional financial management prioritizes stability and profit through methods like financial planning, budgeting, and capital structure. In contrast, alternative finance diversifies lending options. Both approaches present distinct perspectives, with traditional finance emphasizing stability and profit control, and alternative finance challenging conventional lending norms. In summary, while traditional finance assumes rational markets, alternative finance is reshaping the lending landscape offering different avenues for financial management.

Keywords: Traditional finance, decentralized finance, behavioral ...