CeFi and DeFi
CeFi
Centralised finance is a financial practice that allows users to earn interest and get loans on their cryptocurrencies through centralised exchanges. In order to process transactions and crypto orders, private keys to the crypto assets are entrusted with a third-party entity.
Currently, one of the most popular uses of centralised finance is cryptocurrency trading. Companies that belong under CeFi offer services including trading, borrowing, lending, margin trading, and many more.
All the crypto trading orders are routed through a central exchange in centralised finance. Most CeFi service providers tend to abide by regulations outlined by the local authorities. These regulations make it mandatory for cefi institutions to implement Know Your Customer (KYC) and Anti Money Laundering (AML) practices. Some popular Examples of CeFi companies include Binance, Coinbase and Kraken
DeFi
Now let’s move on to Decentralised Finance or DeFi. it is a blockchain-based form of finance that does not rely on central financial intermediaries to offer services. Instead, it utilises smart contracts on the blockchain.
A smart contract is an automated code that runs on the blockchain and cannot be changed. Transactions happening in a smart contract are processed by the blockchain without any third-party.
DeFi is a collective term for financial products and services, built on blockchain technologies, in the public blockchain space.There are several applications of DeFi. DeFi platforms allow people to lend or borrow funds, speculate on price movements using derivatives, trade cryptocurrencies, earn interest on funds, and more.
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. Another remarkable feature of this decentralised finance is that the markets are always open and there aren’t any centralised authorities who can block payments or deny you access to anything.
Overall, the DeFi movement is shifting traditional financial products to the open-source and decentralised space while facilitating financial freedom worldwide and removing the need for intermediaries, reducing overall costs, and significantly improving security.
CeFi vs. DeFi
One of the biggest differences between decentralised finance and centralised finance is the fact that the system is regulated in the case of CeFi whereas exactly the opposite is the case with DeFi. In centralised finance, the responsibility of safeguarding the money of the users is with the exchange institution.n
On the other hand, the idea behind DeFi is that the users themselves are responsible for managing their own funds and activities.
In CeFi, it is possible to prevent trade and impose limitations on users. However, the same is not possible in case of decentralised finance.
There are also significant differences to know between CeFi and DeFi.
Now, about cefi and defi regarding general aspects of finance:
1. Centralization
In cefi, centralised exchanges are in charge of everything — right from onboarding users and setting up ground rules, among other things. DeFi applications, on the other hand, aim to decentralise ownership and become community-owned. Everybody has a say in how the application should function while its code is run and maintained by the community.
2. Permission
In cefi, users must sign up and submit to KYC (Know Your Customer) regulations. It is often to prevent criminal activities like money laundering.. In DeFi, as long as you have a non-custodial crypto wallet like MetaMask, you don’t have to submit to KYC or sign up for an account.
3. Trust
In centralised finance, you have no other choice but to trust exchanges and other centralised apps with your assets. In DeFi, you never have to trust anyone with your assets other than yourself.
To sum up, both CeFi and DeFi provide similar concepts.
They plan to make crypto trading popular and improve the trading volume. However the approach is very different.
Both of these models have their pros and cons depending on the investor and their needs.Defi provides transparency and privacy whereas cefi provides trust and shared risks.
Get in Touch with Brilliant Moon!
Along with amazing marketing services, Brilliant Moon will bring you important contents regarding crypto in the best forms of blogs! With our commitment and the services, we can reach your project to the level it deserves. Thus, if you are looking for a team to push your company to its maximum potential, Brilliant Moon is the way to go! Get in touch with our very approachable team members and let’s get started to take your crypto brand to the next level!
For more details:
brilliant.moonbm@gmail.com
