How DeFi and CeFi Can Work Together

What is Centralized Finance?

What is Decentralized Finance?

Features of a Centralized Finance System

  • Although centralized exchanges have often been subjected to cyber threats and hackings, people show trust in them because they come with a sustained legacy of conducting fair trades. Large centralized exchanges have full-fledged customer service teams for each of their departments. A high level of support translates into high comfort levels for users who believe that their funds are in good hands. Resultantly, they don’t mind sharing their information or giving up the custody of their funds.
  • Centralized exchanges offer more flexibility in terms of fiat to crypto conversions. A lot of mainstream investors prefer to join the CeFi bandwagon because it allows them to leverage their fiat currency funds and take payouts in fiat currency as well. It makes onboarding easy and convenient for newcomers. Conversion of fiat to crypto requires a centralized entity, DeFi services often lack this aspect.
  • Centralized exchanges offer cross-chain services. They support the trading of LTC, XRP, BTC, and many other coins issued on independent blockchains. Issues relating to latency and the complexity of performing cross-chain swaps often make DeFi systems lack severely in this aspect. On the other hand, since CeFi gets the custody of funds from multiple chains, they can easily offer this feature.

Features of a Decentralized Finance System

  • One of the most enticing features of a decentralized financial system is that it is permissionless. What it means is that unlike a CeFi system, users of DeFi do not need to complete a KYC process to access its services. Users are free to access the DeFi system using their wallet — without providing any personal information or depositing money. Moreover, a decentralized system supports customization. Individuals with the appropriate knowledge of how things work in a decentralized financial system can build on it. It makes a DeFi system more collaborative. Communities can easily channel a DeFi system’s inherent benefits to their advantage.
  • Since a DeFi system does not take custody of its users’ funds, there is no need to trust what the platform claims about its performance. Users are free to authenticate whether the service is performing as intended. They can do it either by scanning the code or leveraging external tools such as Etherscan to check whether a transaction was executed successfully or not.
  • As we have already noted, a DeFi system encourages people to innovate. It has a build-centric nature perfectly conducive for developers to innovate on ground-breaking financial services that fit the exact needs of a set of beneficiaries.

CeFi and DeFi: Filling Up Each Other’s Gaps

CeFi and DeFi: Coming Together

The Road Ahead

  • Risks associated with DeFi would have to be reduced. This can be done by offering insurance, introducing much vigorous testing and auditing processes, and ensuring that misleading adverse information about DeFi is curbed.
  • One of the reasons why people still move towards CeFi, despite the system being restrictive and stringent, is that there is not enough information on DeFi protocols. An increase in DeFi education would help DeFi to merge with the mainstream.
  • Finally, all stakeholders involved in the world of decentralized finance will have to make sure that reputable DeFi communities are built.

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Zild Finance

Zild Finance

Protocol of mutual decentralized wealth