Introduction to Centralized Finance(CEFI) and Decentralized Finance(DEFI)
In 2020, there is a topic in blockchain that has clearly taken the forefront for others, and that is the Decentralized finance. Away from speculations, the industry of digital asset is shifting majorly towards mainstream adoption.
What is CeFi?
Before the advent of DeFi, CeFi was. Centralized Finance (CeFi) is a service which is structured so that all orders are controlled by one central exchange with no other competing parties. The sole aim of CeFi is to make fair trades, boost more transactions, and increase buying and selling processes.
In simple terms, CeFi is a specialized financial service, built in a way that all orders (whether buying or selling) are channeled through central exchange. The stated prices quoted by the central exchange are the only available prices available for traders.
With CeFi, the users have absolute trust in the people behind a business to professionally and legally manage funds and execute services the business is offering.
What DeFi is.
Decentralized finance (DeFi) is made up of financial applications which operate mainly through a decentralized blockchain. It is a shortcut; it effectively cut out the middle man which many of the finance apps and platforms today makes use of.
The aim of DeFi is to expand the values like Lending and Borrowing, Stocks (bonds, and other tradable assets), Asset storage, Insurance which cryptocurrency has brought to the financial sector over the past few years.
Unarguably, DeFi improves the current centralized infrastructure.
Some Benefits of DeFi.
Autonomy — in DeFi ecosystem, your assets and money are yours and yours alone. This is absent in CeFi
Tradability — With DeFi, investors can trade more efficiently as they aren’t prone to an entire high-value investment at once.
Transparency — with DeFi, data is publicly available, it helps keep service providers honest.
The Disadvantages of DeFi
The fact that it comes with significant volume of benefits doesn’t equate it is without faults.
It is a great risk when you give individuals total control of their money and assets. Passwords can be forgotten, addresses mis-typed — the list of ways you can lose your cryptocurrency is just endless.
Reliable sources (Wall Street Journal) proves that more than one-fifth of all bitcoin are currently missing. And with further adoption, this figure is bound to grow.
Despite the headway's many entities are making, the DeFi regulatory landscape is still ambiguous. Much of the law and DeFi classifications are still uncertain. This is why most businesses are hesitant to jump in fully.
In all, the pros of DeFi absolutely outweigh the cons. Already, DeFi looks poised to continue its momentum.
In less than one month in 2020, users locked an additional $125 million worth of cryptocurrency in DeFi apps, DeFi Pulse says.
Lending and borrowing platforms presently makes up the majority of the DeFi space. Of the top ten most utilized DeFi apps, five are lending providers. We hope to see an increase in other types of DeFi apps, as well.
Moving forward, we speculate melding of the old and new finance worlds.