THE IMPACT OF DECENTRALIZED FINANCE (DEFI) ON TRADITIONAL BANKING STABILITY: A COMPARATIVE ANALYSIS
Indonesia Indonesia Indonesia 
Brunei Darussalam 
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Banking Stability, Comparative Analysis, Decentralized Finance
Abstract
Decentralized finance (DeFi) is reshaping financial intermediation, raising questions about its implications for traditional banking stability. This study examines how DeFi development relates to banking resilience, focusing on competition, institutional interconnectedness, and financial risk transmission. A comparative design combines descriptive analysis of secondary DeFi market indicators for 2020–2025, institutional comparisons of stability mechanisms, and a case study of the March 2023 Silicon Valley Bank–USD Coin disruption. The results show pronounced fluctuations in DeFi total value locked, alongside differences between automated collateral management and prudential safeguards in conventional banking. Concentration among major lending protocols indicates that technological decentralization does not necessarily disperse financial risk. The Silicon Valley Bank episode illustrates how disruptions in conventional banking can spread to stablecoin markets through reserve exposure and liquidity dependence. These findings establish plausible channels of cross-system vulnerability but do not demonstrate a statistically significant or causal effect of DeFi expansion on banking stability, because country-level regression estimates were unavailable. The study concludes that financial stability depends on the structure of institutional exposures and the effectiveness of risk management across interconnected systems. Future research should test these relationships using comparable country-level data and robust econometric identification strategies and carefully specified measures of decentralized financial exposure.
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