The combination of traditional finance and cryptocurrency has opened many discussions about the future of the financial industry. This article examines TradFi's role, exploring its functions and challenges within both decentralized finance (DeFi) and centralized finance (CeFi).

What is TradFi?

TradFi, or traditional finance, refers to the conventional financial system consisting of banks, government-issued currencies (fiat money), stock exchanges, and regulated financial institutions. These entities follow defined rules and policies to enhance investor trust and ensure financial stability.

Functions of TradFi

TradFi serves several critical functions to sustain the global economy:

- **Capital Allocation:** Banks and financial institutions act as intermediaries in the process of lending and borrowing capital, assisting companies with financing through loans, bonds, and equity sales.

- **Wealth Management:** TradFi offers services like investment portfolios, retirement planning, and savings accounts, helping individuals and organizations accumulate and build capital assets.

- **Payment System:** The traditional financial system provides safe and secure transaction methods, especially for cross-border operations. Money transfers, credit and debit card use, and bank accounts become more efficient through this system.

- **Risk Management:** TradFi provides ways to manage financial risks, including insurance, hedging, and futures contracts.

- **Regulation and Oversight:** Financial regulations in TradFi ensure safe, transparent, and stable operations within the financial market.

Challenges and Perspectives

Amid the rise of digital currencies, TradFi faces several challenges and opportunities. While decentralization and innovations in cryptocurrencies demand adaptation, they also provide new possibilities for integrating traditional mechanisms with new technologies.

TradFi continues to play a crucial role in the global economy despite challenges from cryptocurrencies. Its functions remain significant, especially for risk management and financial stability.