The Society for Worldwide Interbank Financial Telecommunications (SWIFT) used by the existing foreign exchange remittance system started in 1972 and is now used by most banks. More than 11,000 companies in more than 250 countries joined SWIFT as members, and the global remittance market related to this has reached approximately $3 trillion.
The existing SWIFT transmission method completes the foreign exchange remittance business through a total of 6 stages in the following way.
This method of transmission cannot be directly processed by all banks (Straight Through Processing, STP), so this structure leads to the involvement of many banks in the entire process. Such bank payment methods will eventually waste the time of users and remitters and create a burden of high commission fees. Recently, many banks have cooperated with international remittance companies to provide services to reduce commission fees. However, this method uses SWIFT Code and faces restrictions in reducing handling fees. In addition, it is difficult for existing banks using SWIFT for foreign exchange remittance to confirm in real time when and through which bank the remittance is being made.
The advent of bitcoin enabled transnational value transfer without a centralized issuer, and the emergence of Ethereum and smart contracts enabled the existence of a financial system that runs without an operating entity according to the published rules. Traditional financial markets start with the premise that transaction costs and information costs can be lowered in the financial markets by entrusting assets to financial intermediaries. DeFi started by questioning the above premise. “Wouldn’t the intermediary be replaced by a decentralized automation system?” At DeFi, financial institutions are not responsible for reviewing and executing loans and investments. The smart contract code disclosed on the blockchain network automatically executes loans and investments based on the information that can be checked within the blockchain network. Both the execution of the asset and its basis are transparently disclosed to the network.
DeFi’s goal is a perfect replacement for the traditional financial industry represented by banks. Smart contract, one of the core components of DeFi, is a program that automatically processes assets based on information in the blockchain network, so it can handle most of the tasks that a financial intermediary’s asset management program can handle.
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