CeFi and Defi

01/06/2022
3:43 pm

At the outset, it is worth saying that traditional financial services such as payments, loans and financing were available only through financial institutions and banks, but with the introduction of blockchain technology it has been transformed into a new system, which is centralized finance and decentralized finance.

Centralized finance and decentralized finance both have the same goal, which is to allow people to use digital currencies for a wide range of financial services, but the difference is how do they do that?

CeFi Central Finance
Centralized finance is a type of financial practice in the cryptocurrency space where users can earn interest and get loans on their digital assets, the assets and services provided are managed by people and users need to accept this system, it comes down to whether people should be trusted to manage crypto money ethically.

This funding tends to offer a more holistic approach and generally focus on maximizing the value of cryptocurrencies, CeFi platforms are more flexible compared to DeFi and you can do cryptocurrency transfers and exchange across their chains.

As well as the ability for users to access customer service provided by individuals or companies that manage funds in the event of a problem with the services.

DeFi

Decentralized finance is a financial service that uses a set of smart contracts and algorithms to implement its services and does not require intermediaries or banks, which means that users deposit their money to be managed by artificial intelligence and no company or individual has access to the funds.

Decentralized finance is designed to be accessible to all without discrimination or restrictions, and one of the disadvantages of this finance is that it can be misused by the wrong parties to conduct illegal transactions and fraud.

And you don’t have to worry about whether this system will work as intended or not, because you can check the DeFi services by auditing the codes and you can also use third-party tools to check if the transaction was executed correctly. Thus, we conclude that the two systems have advantages and disadvantages, and the investor can choose between them according to what suits him. If you tend to transparency and privacy, then decentralized financing is your choice, but if you want to share risks, confidence, flexibility and more investment opportunities, then centralized financing will suit you.

Where it became clear the clear differences in how centralized and decentralized finance achieve their goals, despite their unified endeavor to popularize the idea of trading digital currencies and improve its rates by increasing the demand for it by individuals.
Here the question remains, whether we should trust technology or people?