DeFi and CeFi 

 

 

Blocklime has organized Southeast Asia DeFi week 1 & 2. DeFi is a catch-all term for a group of financial tools upon Ethereum and allows anyone with internet access to be able to lend, borrow, and bank without a middleman. As a concept, DeFi is a system of open, permissionless, and interlocking financial products. DeFi applications are built on top of Ethereum, which was invented by Vitalik Buterin. The current largest and first major DeFi application is MakerDAO, which was founded by Rune Christensen. DeFi protocols are modular so they can stack on top of each other to build an increasingly denser system of interoperating parts. Besides being able to stack on top of each other in nearly limitless ways, DeFi products also open up financial access to millions of people around the world. A payment system in which anyone on earth can send money to anyone else on the planet was just the start of the crypto revolution. Since DeFi products are simply code distributed across a decentralized network, they can also never be shut down or denied to those who want to use them. Most DeFi apps do not require users to give up any personal information or register, but ETH is required in order to pay for transactions on the Ethereum network. Users can take out a loan or earn interest on stable coins using MakerDAO’s Oasis app and compound. If the trend continues and the DeFi maximalists are right, this is just the beginning of a massive DeFi wave. True believers argue that the advantages of an open and decentralized financial system are simply too compelling to not capture trillions of dollars of values. The benefit of using CeFi services is that there is a higher degree of flexibility. CeFi services commonly provide holistic solutions and can quickly adapt to the needs of customers. When using a traditional cryptocurrency exchange, such as Binance, Coinbase, or Kraken, users send funds to the exchange to manage them within an internal account. While funds are on the exchange, they are stored outside of users’ custody and are therefore vulnerable to threats in the event that the security measures put in place by the exchange fail. CeFi services overcome this issue by taking custody of funds from multiple chains ( whereas decentralized services require that tokens follow Ethereum token standards to achieve interoperability). A crucial attribute of CeFi and DeFi services is the ability to provide users with the liquidity necessary to complete trades and at a good price. When a user submits a transaction, there may not be existing trade orders on the market that meet the user’s order requirements. Additionally, much of the liquidity in CeFi and DeFi is fragmented across multiple exchanges. Both DeFi and CeFi have valid places in the cryptocurrency movement. They offer attractive yields, faster transactions, and infrastructure that promotes more open finance. Both of these visions will improve financial inclusion. Whether your preference is for DeFi or CeFi, the innovations will almost certainly mean the end of banking as we have come to know it. That is a net positive for everyone.