RealFi - The Fusion of Traditional Finance and DeFi

RealFi - The Fusion of Traditional Finance and DeFi
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As the world moves rapidly toward digitization, the financial sector is no exception. A new era of finance has emerged, combining the advantages of traditional finance with the revolutionary world of decentralized finance (DeFi); RealFi is a revolutionary approach that combines the stability of the traditional financial system with the accessibility and innovation of DeFi.

Today, I explain how RealFi is changing the world of finance and why EMURGO Africa has positioned the dissemination of RealFi as one of its key missions. ๐ŸŒŸ๐Ÿ”—๐Ÿ’ผ

In summary, RealFi is a ground breaking hybrid financial system that combines the best of traditional finance and DeFi, offering enhanced liquidity, lower costs, improved security, and greater accessibility for businesses and individuals. However, RealFi faces challenges such as regulatory clarity, interoperability, education, and security.
Promotion of RealFi is one of the most important missions of EMURGO Africa. It is because RealFi has the potential to reshape the financial industry, achieve the greater financial inclusion, and provide more chances to those who are disadvantaged in the current social and economic system.

Below, you can read the topics of your interest in more detail. ๐Ÿ‘‡๐Ÿพ๐Ÿ˜

Table of Contents:

  1. What is RealFi, and How Does it Work? ๐Ÿ”
  2. Benefits of RealFi ๐Ÿ“ˆ๐Ÿ†
  3. Challenges of RealFi ๐Ÿ”ฎ
  4. EMURGO Africa, Cardano and RealFi: Applications in Africa ๐ŸŒ๐Ÿ”ง

1. What is RealFi, and How Does it Work? ๐Ÿ”

RealFi is a hybrid financial system that fuses traditional financial structures and services with decentralized finance. This fusion enables businesses and individuals to access a wide range of financial products and services without sacrificing the benefits of either system. So, how does RealFi work? ๐Ÿค”๐Ÿงฉ

Traditional finance (TradFi) relies on centralized institutions like banks and credit unions to provide financial services such as loans, mortgages, and savings accounts. While these institutions have proven effective, they can be slow, expensive, and lack the flexibility that today's fast-paced global economy demands. In the developing countries, it is said that remittance transaction, on average, carries 8-15% fee; micro finance transactions can have interest rates as high as 85% according to the World Bank. ๐Ÿ˜•๐Ÿฆ

On the other hand, DeFi is a blockchain-based ecosystem that operates without the need for central authorities, allowing users to access financial services directly through smart contracts. DeFi has democratized finance, providing increased accessibility, transparency, and efficiency. However, it also faces its own set of challenges, such as regulatory uncertainty and susceptibility to hacks. ๐Ÿ˜ตโ€๐Ÿ’ซ๐Ÿ”“

RealFi aims to bridge these two worlds, creating a seamless experience that takes advantage of the best features of both systems. It does this by integrating established financial institutions with decentralized platforms, enabling users to access a wide array of financial products and services while maintaining the security and compliance associated with traditional finance. ๐ŸŒ‰๐Ÿ”๐ŸŽฏ

2. Benefits of RealFi ๐Ÿ“ˆ๐Ÿ†

RealFi offers numerous advantages for businesses and individuals, including:

  1. Enhanced liquidity ๐Ÿ’ง๐Ÿ’ฐ: RealFi enables businesses to access a larger pool of capital from both traditional and decentralized sources, providing greater flexibility in funding operations and pursuing growth opportunities.
  2. Lower costs โฌ‡๏ธ๐Ÿ’ธ: By leveraging blockchain technology and smart contracts, RealFi can streamline processes and reduce transaction fees, resulting in cost savings for businesses and individuals.
  3. Improved security ๐Ÿ”’๐Ÿ›ก๏ธ: RealFi's integration of traditional financial institutions provides an additional layer of security, ensuring that funds are protected and regulations are adhered to.
  4. Greater accessibility ๐ŸŒ๐Ÿšช: RealFi allows businesses to access financial services without geographical or institutional barriers, fostering inclusivity and opening up new markets. It is said that currently there are 49 million MSMEs in Africa; $525B financing demand, among which over 80%($422B) is not met. The demand for the access to the financial service is huge.
  5. Innovative financial products ๐Ÿงช๐Ÿš€: RealFi encourages the development of innovative financial products that cater to the unique needs of businesses, such as hybrid loans that combine features of traditional and decentralized financing.

3. Challenges of RealFi ๐Ÿ”ฎ

RealFi has the potential to reshape the financial landscape, offering unprecedented opportunities for business and individuals. However, it also faces several challenges that need to be addressed in order to unlock its full potential:

  1. Regulatory clarity ๐Ÿ“œ๐Ÿ‘ฎ: As RealFi straddles both traditional and decentralized finance, it must navigate complex regulatory environments. Clearer regulations and guidelines can help foster trust and ensure compliance, paving the way for wider adoption.
  2. Interoperability ๐Ÿค๐Ÿ”„: For RealFi to be successful, seamless integration between different blockchain networks and traditional financial systems is essential. This requires the development of robust infrastructure and interoperability solutions.
  3. Education and awareness ๐ŸŽ“๐Ÿ”ฆ: To drive adoption, businesses and individuals need to be educated on the benefits of RealFi and how it can be effectively utilized. This requires concerted efforts from both the public and private sectors to promote awareness and understanding.
  4. Security and privacy ๐Ÿ”๐Ÿ•ต๏ธโ€โ™€๏ธ: As RealFi combines elements of both traditional finance and DeFi, it must address concerns related to security and privacy. Ensuring that users' funds and data are protected is crucial for building trust and driving adoption.

4. EMURGO Africa, Cardano and RealFi: Applications in Africa ๐ŸŒ๐Ÿ”ง

Figure 1 below shows the wings of EMURGO Africa and Input Output Global (IOG) activities. There are 3 wings; investment, development, and promotion of RealFi. We have positioned the widespread adoption of RealFi as one of our most important and core missions. Not only because of the benefits it brings to the world, as explained above, but also because of its potential to reshape the financial industry, achieve greater financial inclusion, and provide more opportunities for disadvantaged groups in the current social and economic system.

Figure 1. EMURGO Africa Activity Wings

Source: Created by author; Note: Input Output is the founding entity of Cardano Blockchain. It is the tech and engineering company to build and maintain the Cardano platform. To know more about Cardano blockchain and its founding entities including IO and EMURGO, read this blog post.

In order to achieve promotion of RealFi in real developing countries, it will also be important to create infrastructure to reach marginalized populations, such as digital IDs, including decentralized IDs, and network accessibility. Figure 2 below summarizes the activities related to RealFi application in Africa.

Figure 2. Summary of Activities related to RealFi Application in Africa

Source: Created by author; Note: Activities above are led by IOG.

RealFi offers a promising path forward for the financial industry, combining the best of traditional finance and DeFi to create a more accessible, efficient, and secure financial ecosystem. As business and individual embrace RealFi, it has the potential to revolutionize how we interact with money and transform the global economy. Now is the time to join the RealFi revolution and help shape the future of finance. ๐Ÿš€๐ŸŒ ๐Ÿ’ช

Follow EMURGO Africa for more information

EMURGO Africa invests and supports local Web3 projects in the region to adopt Cardanoโ€™s decentralized blockchain technology to build socially impactful solutions.

As a regional entity of EMURGO, the official commercial arm of Cardano, EMURGO Africa also runs a local Cardano accelerator in Africa, Adaverse, which accepts applications year-round.

For more up-to-date information on EMURGO Africa, follow the official channels listed below.

About EMURGO Africa