CeFi (Centralized Finance) has been around since the time Bitcoin first emerged. However, a new trend has come into view in the form of DeFi (Decentralized Finance), which has garnered a lot of attention over the last year.- Decentralized Finance -
In the last century, a lot of things and industries have changed and a lot of new technologies and applications have been invented, since the introduction of cryptocurrencies and blockchains the world’s finance has also changed to be more flexible and more suitable to the financial mutations around the world, This introduced a whole new set of blockchain-based financial applications. CeFi (Centralized Finance) has been around since the time Bitcoin first emerged. However, a new trend has come into view in the form of DeFi (Decentralized Finance), which has garnered a lot of attention over the last year.
In today’s post we’re going to explore the differences between Defi and Cefi but first, let us give you an introduction to each one of them.
Defi stands for Decentralized Finance, a blockchain-based form of finance that does not rely on central financial intermediaries like banks or financial institutions to offer services or products, instead of that it uses smart contracts* on blockchains.
With DeFi, you not only have control and visibility over your money but also have exposure to global markets and alternatives to your local currency or banking options
*Smart contracts: A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control, or document legally relevant events and actions according to the terms of a contract or an agreement.
The main idea behind a centralized exchange is that all the crypto trading orders are routed through a central exchange in centralized finance (CeFi)
In CeFi, centralized companies and institutions store your funds in their custodial wallets. These crypto wallets store users’ private keys. In return, these services provide customers with different services. Cryptocurrency trading is currently one of the most common solutions enabled by centralized finance.
Both Decentralized and Centralized Finance aims to achieve the same goal. They plan to make crypto trading popular and improve the trading volume. However, the way these two ecosystems carry out their objectives is different.
Funds Custody: In Defi system, The user has complete authority over funds custody, however in the Cefi it’s outside of the user’s custody.
Services available: In terms of the financial services they offer, there are many similarities between CeFi and DeFi: Borrowing, Lending, Payments, Trading
Security: Cefi is vulnerable in case of security bridges on the exchange,
Risk Factor: Security relies on the technology you are using, Wherein Centralized exchanges are responsible for security.
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