What is Traditional Finance Theory (TradFi)?
TradFi or traditional finance is the mainstream financial system. Institutions operate on this system. Some institutions include, for example, banks, hedge funds or brokerage firms. TradFi stands for “traditional finance”. In other words, it meets the mainstream financial system in which institutions operate.
TradFi is characterized by a high degree of centralization control and the exclusion of individual investors from many financial services offered in crypto, such as participating in Automated Market Maker (AMMs) or investing in a trading firm with tools like flexUSD. Traditional finance (TradFi) theories; It consists of Markowitz’s Modern Portfolio Theory and the Capital Asset Pricing Model and Arbitrage Pricing Theory built on its foundations.
The Efficient Markets Hypothesis is the building block of traditional market assumptions.According to the Traditional Portfolio Theory, the aim of the investor is to maximize the expected return on the investment at a level of risk that he will accept.