A chasm within the cryptocurrency space differentiates centralized finance (CeFi) and decentralized finance (DeFi); it is essential to dive into a head-to-head comparison to know more about these financial systems.
What is CeFi?
CeFi is an abbreviation for centralized finance, which is sometimes regarded as a closed financial market. In CeFi, central exchanges handle and manage every cryptocurrency trade order and fund, and users don’t own access to their wallets. Because of this, most centralized exchanges are vulnerable to threats and have become the target of numerous attacks and hacks over the years. Some Examples of CeFi are Binance, Coinbase. Kraken, etc.
What is DeFi?
Decentralized finance brings in different frameworks, tools, and technologies. Built on blockchain technologies, DeFi is an open and global financial system that offers secure transparency access with the assurance of flexibility, visibility, and control to financial services. In addition, DeFi offers services with no need for intermediaries by utilizing innovative contracts.
CeFi vs DeFi
S/N | CeFi | DeFi |
| Fund Custody | Users trust the people behind the system to execute services and manage funds. | Users bank on the technology, thus, have complete authority over funds custody. |
| Mechanism | Pluggable Framework | Proof of Work |
| Security | Centralized exchanges are accountable for security. | Security counts on the technology. |
| Service | Available services include – Borrowing, Trading, Payments, Fiat-to-crypto, and Lending. | Services offered include Borrowing, Crypto Lending, Payments, Yield Farming, Trading, Asset Storage, and more. |
Final Thoughts
Both centralized finance (CeFi) and decentralized finance (DeFi) have the same goal: to deliver a wide range of cryptocurrency-related financial services. However, the technique used by these financial services to carry out their objectives is different, but they still aim at improving the trading volume and making the crypto exchange popular.
