What is CeDeFi?
CeDeFi refers to a union of CeFi and DeFi, which is the combination of the best features and attributes of the two financial systems. No financial systems have even split into centralized finance(CeFi) and decentralized finance(DeFi). The first one is a traditional bank-enabled finance system, while the latter one is based on cryptocurrencies and smart currencies.
Both of them have the same features and protocols. However, the first one allows centralized access while the other one has decentralized exchanges, liquidity aggregators, yield farming tools and lending protocols.
DeFi is permissionless and is readily available for use by anybody out there. The CeDeFi projects are combined with having a centralization approach which is governed by the angle or small group of entities.
Hence, we can say that this ecosystem is a hybrid approach of both centralized and decentralized models, aiming to improve the traditional cryptocurrency model while allowing faster and seamless transactions, improved security models and larger transactional volumes for the investors.
Popular CeDeFi protocols
Some of the common examples of CeDeFi protocols include the MakerDAO, Synthetic and Compound, which offer DeFi-like features. These are built on top of the ETH blockchain as they updated the platform in august 2022 to incorporate the strategies. According to the Midas team, this new approach is focused on mirroring the smart contacts and handling asset management using various protocols such as lending, borrowing, soft leverage and more.
What is CeFi?
CeFi is a common structured financial institution that allows consumers to borrow or lend cryptocurrency through any controlled exchanges. This is similar to the conventional banking industry. Users can utilize their collateral when borrowing money or even earn interest based on it. The platform works as the custodian of digital assets.
CeFi has a larger market share compared to the others as they are the most widely used. Binance, coinbase and Diem are just a few popular CeFi platforms.
What is DeFi?
It refers to a broad range of financial products and services that are built on blockchain technologies in the public blockchain space. These are accessible through the DApps that operate on the peer to peer basis. After removing the need for centralized authorities like banks, credit cards and brokers, anyone can access alternate financial systems like lending and borrowing.
This is a centralized exchange that handles all the crypto trading, which means users do not have access to the private keys or own their crypto. However, DeFi users have complete control over their funds as there is no centralized authority that handles the transactions. Hence, we can understand that both CeFi and Defi have their own pros and cons.
Advantages of CeFi
There are several advantages to CeDeFi, which are lower fees, improved security, accessibility, speed and lower expenses. This decentralized banking approach allows users to trade CeDeFi crypto assets without the need for any centralized exchange. This means that users can easily make transactions directly with others without the need to remove any intermediary.
The costs are also lower than the other platforms as there are barely any middlemen involved here. ETH has the highest gas fees with DEX as the transactions run into hundreds of dollars. However, you can encounter some congestion issues, resulting in more delays. The Binance CeDeFi on the other hand, have lower fees and quicker transactions, making users accept fees in split seconds.
Similarly, the CeDeFi network has impeccable security standards that ensure that breaking into the network is nearly impossible.
Also, auditing the projects and tokens by the exchanges is easy, which makes transactions much safer.
Disadvantages of CeDeFi
The major downside here is the high learning curve that is associated with the protocols due to their complexity. Since the concept is still young, it is still user-friendly as the interfaces are bound to each other over time.
If ETH fails, CeDeFi is likely going to fail too. The risk is mitigated with ease and are now beginning to adopt CeDeFi protocols.
Another major disadvantage of the protocol is the relatively new and unproven concept. The growth is incredible and has seen a trajectory of positive results over the past year, even during its early stages. Thus, the protocols are subjected to higher volatility. This means it is still not yet ready for mass adoption.
However, there is still its fair share of scams. Due to certain regulations and rules, there still have been major scams in the CeDeFi space with ease. Thus, there is always a chance of potential threats and scams. The goal is to stay on the safer side during your crypto transactions. Hence, it is always advisable to use the most reputable CeDeFi space to avoid these scams and threats to your crypto ventures. This is one of the most popular choices when integrating these protocols and applications into mainstream financial systems.