Broken rails, better rails: why traditional finance needs DeFi
By Paul Quickenden, Swyftx New Zealand Country Manager
There’s a popular story doing the rounds in crypto circles and it goes like this: traditional finance is broken and crypto is here to replace it. That framing, however, misses the point. Traditional finance didn’t fail. It did exactly what it was designed to do but the problem is that it was designed for an analogue world, without global connectedness and we are now forcing it to operate at a speed and scale it was never built for…
Money today moves digitally, globally and we need it to move instantly. Value does not wait for branch hours, antiquated settlement or for offices to open; and markets do not pause because a form needs to be signed. Yet the rails underneath our financial system still adhere to this quaint notion that we want financial services when they are open and they assume delays, multiple intermediaries and costs are acceptable. They are not. They are friction.
This is where the real conversation about DeFi needs to start. It is not as a rebellion against banks, but a new kind of plumbing.
What do we actually mean by TradFi and DeFi?
Traditional finance, or TradFi, refers to the systems we use today. Banks, clearing houses, settlement networks, correspondent banking and multiple layers of reconciliation and checks. These systems rely on trusted intermediaries and time delays to manage risk.
Blockchain changes the foundation. It is new underlying infrastructure using a shared ledger that records and verifies transactions in near real time without relying on post transaction reconciliation. Tokenisation sits on top of that infrastructure and is the method of representing real world assets as digital tokens on a blockchain. The asset stays the same. The way it is recorded and transferred changes. Like the difference between physical cash and digital cash.
DeFi is the layer that uses those tokens to deliver financial services such as payments, settlement and trading without relying on traditional finance companies as intermediaries. It’s not about replacing them but about recognising that the old rails are under strain and new foundations are being built alongside them, changing how financial systems operate.
When old rails start to creak
The stress points in traditional finance are not just theoretical. Anyone who operates a business, allocates capital or moves money across borders has felt them.
Settlement speed
In many markets, settlement still takes days (if you’re lucky). During that time, your capital sits idle while the system catches up. That delay is expensive and it ties up capital, reduces liquidity, and increases counterparty risk.
This is why institutions are already experimenting with new rails. JP Morgan, the world’s largest bank, recently launched JPM Coin. It enables 24 hour settlement between institutional clients inside JPM’s own ecosystem and exists to remove delay and free capital, not to speculate. (Source.)
Cross-border payments
Moving money across borders remains slow, opaque and can be extremely costly. Fees accumulate at each step, visibility is poor and delays have become normalised.
Stripe’s integration of stablecoins is a practical response to this that allows value to move globally without relying on correspondent banking chains. Again, this is not about ideology change but about removing duplication and dead capital. (Source.)
Asset access and liquidity
Many assets are difficult to access or trade because ownership and settlement are complex. This limits participation and locks up value.
BlackRock’s tokenised government bond fund is a signal of where things are heading with on-chain issuance and settlement that will simplify access and improve liquidity without changing the underlying asset. The asset stays the same; but the rails have changed. (Source.)
Market hours and participation
Annoyingly, markets still close and participation is restricted by geography, intermediaries and operating hours.
Robinhood’s exploration of tokenised equities and extended trading hours reflects a simple reality that in a digital economy, value does not stop moving because the clock says so. (Source.)
In every single one of these cases, the point is the same - DeFi is about removing delay, duplication and idle capital.
What changes when friction disappears
When you remove friction, you do not just make systems faster but change how risk behaves. Delays in traditional finance act as buffers because they absorb mistakes and give teams time to intervene. When settlement becomes instant, those buffers disappear and errors can move as fast as value.
This is where the DeFi conversation often goes wrong because faster does not mean safer by default…it just means different.
Critically, new rails need new guardrails and this is why regulation does not disappear in a DeFi world but becomes more important. The role of regulators, institutions and platforms is not to slow things down artificially but to ensure that speed does not come at the expense of trust.
Why TradFi needs DeFi, not the other way around
The most important shift happening right now is not that crypto is replacing banks. It is that banks, payment providers and asset managers are quietly adopting DeFi principles because the economics make sense.
24x7 trading means more business and reflects how the global economy actually works. Instant settlement frees capital; programmable rules reduce duplication; transparent ledgers improve traceability.
These are infrastructure upgrades. Traditional finance brings scale, trust and regulatory maturity and DeFi brings access, speed and efficiency and the future sits somewhere at the intersection of the two.
Where does this leave us?
The future of finance is not about blowing up the old system but about upgrading the plumbing. The rails that carried value for decades are under strain because the world has changed. New rails are emerging not because they are trendy, but because they solve real problems that the old system struggles with.
This shift is already happening, institution by institution and the question is no longer whether new rails will take over but how quickly we design the right guardrails to go with them.
Disclaimer: Investing in crypto carries risk. Always do your own research or seek professional advice. Terms and Conditions apply
