Web3 and Finance: How Decentralization is Revolutionizing Banking

by KarNivesh | 08 September, 2025

The way we handle money is changing faster than ever before. Imagine a world where you no longer need to wait in line at a bank, deal with weeks-long loan approvals, or pay thousands in fees just to send money abroad. This isn’t a futuristic dream it’s happening today, thanks to Web3 and Decentralized Finance (DeFi). For everyday people, this shift is as transformative as when ATMs first changed banking decades ago.

Traditional banks have been at the center of our financial system for centuries, but their dominance is now being challenged. Web3, built on blockchain technology, is creating an alternative financial ecosystem that promises to be faster, cheaper, and more accessible. This change is particularly significant for the 1.4 billion people worldwide who currently lack access to basic banking services.

Illustration of a decentralized blockchain network with connected nodes symbolizing Web 3 technology.

Understanding Web3 and DeFi

Web3 is the next evolution of the internet. Unlike Web2, which is dominated by tech giants such as Google and Facebook, Web3 distributes power among its users through blockchain technology. Instead of companies storing and controlling your data, it is securely recorded across a decentralized network of computers.

Decentralized Finance (DeFi), a core part of Web3, is essentially banking without banks. It uses smart contracts self-executing digital agreements to provide services like lending, borrowing, and trading. In DeFi, there’s no need for a bank manager or middleman; everything is automated and transparent.

The growth of DeFi has been explosive. The market expanded from ₹2.65 lakh crore in 2024 to a projected ₹2.04 crore crore by 2030. With an annual growth rate of over 50%, DeFi is one of the fastest-growing sectors in global finance.

DeFi Market Growth Projection (2024-2030)

Traditional Banking vs. DeFi

In the traditional banking model, when you deposit money, the bank lends it to others and profits from the difference between deposit and lending rates. While savers earn 2–3% annually, borrowers are charged 8–15%. Moreover, several intermediaries local banks, central banks, payment processors like Visa, and correspondent banks for international transfers add extra costs and delays.

DeFi eliminates these intermediaries with smart contracts. This means lenders can earn higher returns, often 6–14% annually, while borrowers benefit from lower rates. On average, DeFi platforms yield about 8.2% compared to just 2.1% in traditional savings accounts. In some cases, stablecoin lending has generated up to 14% returns, while banks in many countries still offer under 0.5%.

Interest Rates: DeFi vs Traditional Banking (2025)

How Major Banks Are Embracing Web3

Interestingly, instead of resisting this disruption, many global banks are experimenting with Web3.

• JPMorgan Chase has processed more than ₹88 lakh crore worth of transactions using its blockchain-powered JPM Coin.

• HSBC launched a Digital Vault that allows clients to instantly access tokenized assets such as stocks and bonds.

• DBS Bank in Singapore uses blockchain for trade finance, cutting costs and reducing processing time from weeks to days.

• Sweden’s Central Bank is piloting the “e-krona,” a blockchain-based digital currency, potentially reshaping everyday money use.

Financial Inclusion: Banking the Unbanked

One of the biggest promises of DeFi is financial inclusion. While 1.7 billion adults globally lack access to formal financial services, around 1.1 billion of them own mobile phones. DeFi enables these individuals to access credit, savings, and payments with just a smartphone and internet connection.

Traditional banks often require heavy documentation, minimum balances, and costly infrastructure opening a new account can cost them between ₹8,820 and ₹26,460 per customer. In contrast, DeFi platforms onboard users instantly and at minimal cost.

Some success stories include:

• GoodDollar and Impact Market, which have provided over 500,000 people in India, Nigeria, and Indonesia with universal basic income through crypto wallets.

• Whrrl (India), which has empowered 60,000 farmers and 4,000 small businesses by tokenizing commodities worth ₹58,212 crore and disbursing loans of over ₹1,764 crore.

DeFi’s cost efficiency is striking. While a traditional bank wire costs about ₹829, a DeFi transaction can cost as little as ₹5.

Risks and Challenges

Of course, DeFi isn’t risk-free. In 2024 alone, over ₹1.32 lakh crore was lost to hacks and exploits in DeFi platforms. Still, traditional banking fraud in the U.S. alone caused even higher losses, at around ₹2.47 lakh crore.

The main vulnerabilities include smart contract bugs, manipulation of price feeds (oracles), and off-chain security breaches. Additionally, the regulatory landscape remains unclear. Governments, including India’s, are struggling to balance innovation with rules on Anti-Money Laundering (AML) and Know Your Customer (KYC).

Another challenge is complexity. Managing private keys, navigating multiple DeFi protocols, and understanding gas fees can be overwhelming for non-technical users.

CBDCs: A Middle Path

Central Bank Digital Currencies (CBDCs) are emerging as a middle ground. They combine some benefits of DeFi speed and low costs with the stability and regulation of traditional banking. Countries like China, Sweden, and India are testing digital currencies to reduce payment costs, enable faster cross-border transfers, and reach underserved populations.

However, CBDCs could also disrupt commercial banks by reducing their deposits and market share in payment services.

The Bigger Picture: Economic Impact

DeFi’s rise is backed by staggering numbers:

• Total Value Locked (TVL) in DeFi reached ₹1.09 crore crore in 2025.

• Over 14.2 million wallets now actively use DeFi platforms.

• Stablecoins worth ₹1.29 crore crore circulate within DeFi ecosystems.

Transaction speed and cost comparisons are equally impressive. A traditional international transfer can take days and cost up to ₹4,410, while a DeFi transfer costs as little as ₹5 and completes within seconds.

For individuals, the benefits are clear:

• Savers can earn 6–14% instead of 2–4%.

• Borrowers can access loans instantly instead of waiting weeks.

• Small businesses save money and time on cross-border payments.

• The unbanked gain access to services with just a smartphone.

The Road Ahead

India’s own UPI system, which processes 1.5 billion transactions a month, shows how digital finance can reshape economies. Similarly, blockchain infrastructure is making DeFi more accessible worldwide. Still, adoption will depend heavily on user education, simplified platforms, and clearer regulations.

The future is likely to be hybrid, where banks integrate DeFi services while maintaining regulatory compliance and customer trust. Web3 won’t erase banks but will push them to evolve into more efficient, customer-friendly institutions.

Conclusion

Web3 and DeFi aren’t just technological innovations they represent a democratization of finance. With higher returns, faster transactions, and lower costs, they’re opening financial opportunities to millions who were previously excluded.

The journey won’t be without challenges security concerns, regulatory uncertainties, and the need for user education remain. But the momentum is undeniable. From farmers in India accessing loans through blockchain platforms to global banks adopting digital assets, the financial system is being reimagined.

The future of banking is decentralized. Those who adapt early whether individuals, businesses, or institutions will enjoy the greatest advantages in this rapidly evolving landscape.