DeFi & CeFi – What are the differences?

In this article we compare two things: CeFi and DeFi. DeFi stands for decentralized finance, also known as decentralized finance. You can guess, but CeFi stands for centralized finance: centralized finance. We look at the characteristics of both camps and also give some examples. AVEM is a good example of DeFi and the Coinbase platform probably rings a bell on CeFi. In addition to the features, we will cover the differences between decentralized and centralized economy and introduce a relatively new term: CeDeFi. Are you reading along?

Take a quick look

What is DeFi?

In this article we are going to map out the differences between DeFi and CeFi, but before we take the deep dive you should of course have the basics. Let’s start with the concept of DeFi. DeFi stands for Decentralized Finance, also called decentralized economy/finance. It is a global system available to everyone. Financial products as we know them today have an expiry date. Relatively new developments and trends, such as crypto, NFTs, blockchain and Web3, will put an end to the traditional forms that we have known for centuries.

By using decentralized networks and blockchains, financial products and services are transformed into a more transparent form. Intermediaries are no longer needed and the platforms, protocols and dApps can now be controlled technologically. Smart contracts also come into play here; if you want to know more about this, read this article.

With decentralized finance, you can take matters into your own hands and trade on the blockchain, insure business, extend credit, secure money issuance, strike, make payments and receive payments, and build and manage your wealth. Perhaps the most important fact of all is that there is no central authority to exert influence. It’s all open source and transparent, making it available to everyone whenever you want! Transactions are approved through a peer-to-peer network.

Want to know more about DeFi? Watch the video below for a compact explanation:

Features of DeFi – Decentralized economy

  • distrust. You can trade with anyone, including people you don’t know and trust. By checking the codes and using tools, it is possible to complete transactions without being cheated;
  • Innovation. A wide range of financial services have already been created that you can really have fun with. You can also buy more and more DeFi crypto coins to ride this big wave. (Note: this is not financial advice! Always do your own research and never blindly trust anyone’s opinion or gut feeling and don’t invest money you can’t afford to lose in risky investments);
  • Without permission. Anyone can use blockchain – and therefore also DeFi – whenever you want. There are gigantic communities and countless people who are only too happy to help you along the way. Best of all, you don’t need permission from central authorities or intermediaries!

Examples of DeFi

  • Battle Infinity (IBAT)
  • Cardano (ADA) – Innovative and mega secure
  • Decentraland (MANA) – DeFi for Metaverse lovers
  • AVEM
  • MarkerDAO

What is CeFi?

CeFi was the standard before DeFi was invented. CeFi, of course, stands for Centralized Finance. With centralized financing, all crypto trades are handled via a central exchange, so there are also those in power. So you don’t have your own wallet with a private key, but everything is owned by someone else.

The stock exchange is therefore the one that influences the fees and the supply of currency. It seems obvious to me that this is not the most ideal way to do business. That is why DeFi was conceived, of course! You can recognize the central exchanges by their KYC policy and AML policy. KYC stands for Know Your Customer, so an identity check, and AML stands for Anti Money Laundering.

Want to watch a video that explains CeFi in just four minutes? Check it out here:

Features of CeFi – Centralized economy

  • Interoperability. CeFi is a global system that makes it easier to work across different blockchains. This interoperability makes it easy to borrow, buy, sell and use certain funds as they are maintained by different superpowers. Note: blockchain interoperability has already had several breakthroughs in the DeFi world;
  • CEX. CEX stands for Centralized Exchange and it means that you basically just have a bank account on an exchange, with which you bypass the fees on the blockchain;
  • Customer service of high quality. CeFi companies ensure that they jointly invest in large funds on which they deploy customer service teams. In the world of DeFi, not much is happening yet, because because it is all still nice news, a lot has to come from the community. In a few years, this picture will look very different, I suspect.

Examples of CeFi

Differences between DeFi and CeFi

I have now explained both definitions to you and you have been able to watch the videos for support. But what are the main differences between DeFi and CeFi? The differences are clearly shown in the table below, but we will also highlight the differences:

  • With CeFi it is possible to trade from fiat to crypto, while this is not possible with DeFi;
  • Non-custodial means you are in control of your own wallet + seeding. This is not the case with CeFi, but it is with DeFi;
  • DeFi does not (yet) have many cross-chain solutions, while it is the case with CeFi, as described above;
  • With DeFi, you do not have to deal with KYC procedures, but CeFi must comply with applicable laws and regulations.

Want to watch a video on the differences between decentralized and centralized economy? See it here:

What about CeDeFI?

CeDeFi. No, it is not a new language, but a combination of centralized and decentralized economics. What does such a synergy of centralized – old-fashioned – systems and decentralized – based on smart contracts – systems look like? By taking centralized finance as a basis, you provide access to modern forms of financing. CeFi systems are used while you as a user have access to yield farming tools and DEXs.

CeFi is run by one or more entities, making it difficult to make it open and free. This is exactly what many users don’t like and where DeFi really differs. However, it is a hybrid solution which can potentially provide a breakthrough in several areas. Faster transactions, solving security problems, ease of trading and optimization of the existing crypto world.

Example CeDeFi

Midas.Investments is building a platform that wants to test this side of the market. The new version went live in August 2022, bringing new forms of funding to the fore. Midas wants to offer DeFi to users, but by using CeFi’s instruments.

You might be thinking: who came up with this innovative synergy? That is, how could it be otherwise, Changpeng Zhao, CEO of Binance. About two years ago, he threw the term out of the blue, after which all sorts of projects began to renew themselves.

See an explanation about CeDeFi in combination with Binance Smart Chain below:

Conclusion

As you have read, there are quite a few differences between DeFi and CeFi, so it is not surprising that these camps are often diametrically opposed. CeFi supporters go for the trust of the heavily used financial system, while DeFi fans want to see the innovation and the new possibilities.

Looking for more information or have questions about the differences between DeFi and CeFi? Or would you like to meet other crypto enthusiasts? In our product’s free Discord channels Money Mastery from AllesOverCrypto you can ask questions and meet thousands of other crypto enthusiasts. Have other crypto-related questions? The easiest way is to look up your question in our FAQ. Another thing you can do is google your question + All about crypto. Let us know your thoughts on the differences between CeFi and DeFi!

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