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What is CeDefi?

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CeDefi is a union of two contrasting financial systems. It is an combination of centralized finance and decentralized finance. CeDefi has emerged recently however it is gaining much traction due to its unique features.

A basic explanation of CeDefi is that it provides the users with the various features to access decentralized exchanges or lending protocols while leveraging the benefits of a centralized exchange.

DeFi

To understand “CeDefi”, we should have a clear understanding of “CeFi” and “DeFi” respectively.

A “CeFi” system is a rigid structured based financial institution wherein consumers can borrow or lend their cryptocurrency with the help of a centralized cryptocurrency exchange. CeFi-based institutions function according to a traditional banking setup wherein the “CeFi” platform acts as an intermediary during the trading process. In a CeFi ecosystem the moment you give access to the cryptocurrency platform on your crypto assets you relinquish control over your assets.

Comparatively CeFi systems are more prevalent across the market. This phenomenon is visible from the popularity of various CeFi-based platforms like Binance, Coinbase, and Diem. However various technical shortcomings like higher gas fees plus a lack of transparency spearheaded the mass acceptance of DeFi systems.

A DeFi system provides users with a wide range of financial products which are powered by blockchain. These systems function beyond the DeFi systems and provide users with higher control over their assets. DeFi systems are powered through a dApp which functions on a peer-to-peer basis without the requirement of any centralized authority.

However, if we look at both of these markets objectively we will discover various pros and cons like in a CeFi system the user’s assets are handled by a centralized exchange. The user does not have access to various private keys which means that the user doesn’t own the crypto. On the other hand, a DeFi system is completely contrasting wherein the absolute control rests with the user. There are specific blockchain-based protocols in place which permit users to buy, sell or store the funds as required.

Out of these contrasting financial systems a “CeDefi ” system was born which leans towards a bit of centralization. The controls are instituted with various entities which control the exchange etc. The “CeDefi” system is a hybrid model wherein the primary focus is to improve the traditional cryptocurrency model to allow transactions at a faster rate paired with improved security while allowing higher transaction volumes. The “CeDefi” systems also provide services at a lower transactional volume as compared to traditional systems.

What are the advantages of a CeDefi system

  • Lower Costs – A CeDefi transaction can be easily done with very low costs as compared to other traditional routes because a majority of middlemen in between the transaction are directly omitted.
  • Innovative approach – The whole approach behind a CeDefi system results in users trading various Crypto assets without the need for a centralized exchange. This approach directly removes the intermediary thus improving the speed of the transaction.
  • Security – The overall security of a CeDefi system is higher because it leaves very less scope for hacking a traditional banking system that is being built on a blockchain.
  • Accessibility – The overall accessibility of a CeDefi protocol is very eased because it has fewer entry barriers. Any entity that has an Ethereum wallet can easily trade using a CeDefi protocol.

How was CeDefi introduced to the Crypto markets

The term “CeDefi” was coined by Binance CEO Changpeng Zhao in the year September 2020 when he launched the Binance Smart chain.

Are there any existing “CeDefi” protocols

Midas investments updated its platform wherein it provided CeDefi strategies to its users. The platform provides users with Defi options that are crafted according to the user’s risk profile. Apart from that, it will also allow access to various hedged instruments from the CeFi markets. Apart from this MakerDao, Synthetix, and Compound which are built on the Ethereum blockchain are examples of the CeDefi protocol.

Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Please do your own research.