Oct 5, 2021
CeFi & DeFi, All Calm and Casual
With the scope of blockchain technology and cryptocurrency expanding, the debate has now shifted to a new set of considerations. It’s now between two subsets of the same crypto world: centralized finance and decentralized finance.
Welcoming you to the marvelous battlefield of CeFi & DeFi.
Centralized finance.
CeFi is a specialized financial service, built in a way that all orders (whether buying or selling) are channeled through a central exchange. The stated prices quoted by the central exchange are the only available prices available for traders. With CeFi, the users have absolute trust in the people behind a business to professionally and legally manage funds and execute services the business is offering.
Centralized Finance (CeFi) exchanges — act as an intermediary to manage the crypto transactions and activities of users.
Some people love to trust a centralized platform with known managers and users, while others like the freedom of DeFi and migrate their trading activities to decentralized platforms.
These are a few of the very much Centralized Finance exchanges, Binance, Kraken, Coinbase, etc.
The good side of centralized finance.
Centralized finance has been in the crypto industry for a long time. It offers seamless services that are still attractive for traders.
Although DeFi gets a lot of spotlight due to its innovative and avant-garde approach, centralized finance has quite a few benefits worth making the headlines. CeFi tends to offer a more holistic approach and focus on maximizing the value of cryptocurrencies.
One of the many advantages of Centralized Finance (CeFi) over Decentralized Finance (DeFi) is that they support cross-chain exchange for multiple cryptocurrencies, although these cryptos are generated on individual blockchains, thus displaying interoperability of cryptocurrencies. It also allows us to convert fiat currency to cryptocurrency in a super-easy way which is a big gain.
Decentralized finance.
DeFi? Um.. most certainly not.
Blockchain’s favorite baby? HELL YES!
Well, now you know DeFi runs on blockchain. Here’s a brief note on it.
“Decentralized finance is an unbundling of traditional finance,” says Rafael Cosman, CEO, and co-founder of TrustToken. “DeFi takes the key elements of the work done by banks, exchanges, and insurers today — like lending, borrowing, and trading — and puts it in the hands of regular people.”
Decentralized finance aims to build an open-source, permissionless, and transparent financial service ecosystem. The decentralized financial system offers services, including borrowing, yield farming, crypto lending, asset storage, and more.
Some of the biggest examples of Decentralized Finance (DeFi) exchanges are Kyber, Totle, MakerDAO, etc.
The good side of decentralized finance.
Blockchain and cryptocurrency are the core technologies that enable decentralized finance.
Having blockchain as the underlying technology, DeFi functions differently than established finance. Novel innovations allow us to eliminate intermediaries. Also, no KYC verification is needed here to access the services.
Some of the most significant advantages of DeFi are trustless and permissionless.
With DeFi, users believe that the technology will perform as proposed to execute on services being offered. You can also use external tools to check if a transaction was executed correctly.
Bottom line.
Both of these models have their pros and cons. It depends on the investor and their needs. If you prefer transparency and privacy, DeFi is the right model to choose from. On the other hand, if your priority is trust, sharing of risks, flexibility, and increased options to invest, you should opt for CeFi.
We, my friend, are blessed to live in the era of ‘Blockchain Technology’. Let us know, how much you’re getting from this series. Follow us on LinkedIn and Twitter.
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