TradFi — short for “traditional finance” — is the established financial system most people interact with in their daily lives. For example, a savings account opened with a licensed and regulated bank is a TradFi product. Mortgages, bank loans, and foreign exchange services all operate in the TradFi world, which is inhabited by retail, investment, and commercial banks.
TradFi is a commonly used term within the blockchain
ecosystem as a comparison to DeFi
(decentralized finance) products and services that operate via smart contracts
This comparison brings up an important distinction between TradFi and DeFi. TradFi is typically seen as being centralized
with higher barriers to entry, while DeFi offers decentralized services that rely on smart contract authority and are open to anyone with a crypto wallet
and sufficient crypto funds.
We can also compare TradFi to CeFi (centralized finance). CeFi offers many of the services DeFi does, but users access them via centralized exchanges. CeFi shares some similarities with TradFi in terms of the way users access their products. CeFi users must create accounts with their providers and give them custody
of their assets — just like one would do with a TradFi bank or institution.