The Role of Decentralized Finance in Emerging Financial Services

Abstract

In recent years, a growing trend toward the decentralized financial system (DeFi) driven by blockchain and technological innovation put more emphasize on understanding of how the traditional financial system can encounter the ongoing and changing demands of a society evolving toward 4.0 and increasingly aiming to meet environmental, social, and governance sustainability criteria. To this aim, this paper provides a broad overview of blockchain technology, explores the DeFi ecosystem in the context of the current financial system, establishes a connection between DeFi and open banking, and offers some policy recommendations. Specifically, we aim to present all aspects of the corporate governance that can be improved through the adoption of decentralized form of blockchain technology to realize the full potential of the fourth industrial revolution. However, we also present the key drawbacks of blockchain that stakeholders should be aware of before implementing this technology. This paper further proposed a conceptual framework for adoption of blockchain technology capturing the complex relationships that exist between institutional, market and technical factors.  In this regard, we demonstrate how organisations and regulators can leverage blockchain to improve business operations, enhance efficiency and reduce operational costs. We also conclude that DeFi still is a niche market with certain risks, but it has great potential in terms of efficiency, transparency, accessibility, and interoperability. As such, it may contribute to the development of a more reliable and transparent financial infrastructure.