CeDeFi Explained

“CeDeFi” combines “DeFi” and “CeFi” in one. CeDeFi tries to deliver users the best opportunities in finance, having the advantages of both DeFi and CeFi technologies. It has started to emerge only recently, mainly as a response to the issues that traditional DeFi still has.

Using CeDeFi, companies can learn about innovative and modern financial products while adhering to generally accepted standards of financial regulation. Briefly speaking, CeDeFi gives people a chance to investigate DeFi products such as DEXes, liquidity aggregators, harvesting tools, credit protocols at low transaction fees.

Why is CeDeFi a great idea?

Furthermore, while decentralized governance sounds great in theory, in practice it can result in a lack of clear direction in terms of governance. As such, CeDeFi provides access to usual DeFi products, like DEX platforms and yield farming services, but a CeDeFi protocol is controlled by a single organization or group of individuals, with no direct voting rights available to ordinary users. This helps ensure the smooth development of a CeDeFi network.

Another issue when it comes to DeFi is security. With the current technology, peer-to-peer transactions that rely on smart contracts are more vulnerable to cyberattacks. This has materialized in many DeFi investors losing money, especially during the early days of DeFi. As such, trust issues have always been a key obstacle ahead of a more rapid development of DeFi, despite continuously improving smart contracts that do offer more and more protection, but still lag behind CeFi protocols when it comes to cybersecurity. CeDeFi protocols claim to represent the golden balance between DeFi and CeFi. Most CeDeFi platforms have lower fees and at the same time offer greater security.

CeDeFi compared to DeFi

While decentralized finance has been rapidly developing during the past few years, DeFi ecosystems still continue to have certain drawbacks. Some of these cons are mainly technical and will most likely be addressed as technology develops. Other disadvantages can be called “situational” and can also be solved as the market matures, i.e. with more DeFi users and service providers. However, there still remain further disadvantages that are very deeply embedded into the core logic of how a DeFi ecosystem functions. 

One of these is the issue of liquidity. In a CeFi ecosystem, there is always an abundant amount of financial capital at every user’s disposal through third parties. To clarify, we are mostly talking about loans here. In a DeFi ecosystem however, all transactions need to happen directly on a peer-to-peer basis. So in theory, you would need to know someone who is willing to lend money to you, to get a loan. This is why yield farming has become such an essential part of DeFi. Users can use a DeFi platform or service provider to put tokens to a shared pool, and others can take loans from this pool, paying interest to the token owners. 

Now, while we are still talking about P2P transactions only, the natural appearance of these “platforms” that enable conveniently taking loans, foreshadow the need to keep certain centralized elements of a traditional financial system alive even in a DeFi environment.

CeDeFi Protocols

Let's see what projects already use CeDeFi. You probably will recognize all of them!

Binance Smart Chain

If you are into crypto, you probably know Binance Smart Chain (BSC), but you might not know that it is actually a CeDeFi platform. While Binance initially began as a centralized crypto exchange, over time it has allowed more and more DeFi integration on the platform. This gives users access to both CeFi and DeFi crypto solutions.

Syntetix

Syntetix(SNX) is a DeFi crypto exchange that also offers innovative CeFi solutions to its users, such as centralized liquidity pools and exposure to crypto, fiat, stock and other derivatives. A derivative instrument is a financial product that does not represent ownership of the original asset, but has its price correlated with it. Using derivatives, people can gain exposure to certain assets in a greater value than there would actually be assets available to buy.

Compound

Compound(COMP) is essentially a CeDeFi yield farming platform that provides users access to both DeFi and CeFi lending and liquidity pools. It offers much greater financial security for the lenders than a normal DeFi platform by supposedly having 2-3 times collateral to back all loans and relying on CeFi methods for collateral and risk management.

Conclusion

CeDeFi has started to gain popularity, as it’s willing to give crypto enthusiasts, both newbies and veterans, the opportunity to work in secure exchanges, while giving them access to carefully selected and tested projects with high liquidity.

All in all, the CeDeFi concept is pretty young yet promising. A few years, or even months later we will be able to see its direction vector and predict the skyrocketing or failure of CeDeFi conception. Let’s keep an eye on it together with SimpleSwap!

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.