DeFi (Decentralized Finance) is currently one of the most popular words in the cryptocurrency circle, but sometimes we can also see a word called “CeFi”, what does it mean, and how does it relate to DeFi?
CeFi is the abbreviation of Centralized Finance, which is a word opposite to DeFi. Although the term “CeFi” has just been created recently, it is definitely not a new thing, because the existing financial systems are all CeFi, such as banks, stock exchanges, and various financial institutions are all CeFi, which has a history of nearly a thousand years . Because of the emergence of the “DeFi” concept, as a distinction, the word “CeFi” was used to represent the existing centralized financial system.
DeFi can be said to be a financial system born from the concept of blockchain. Decentralized exchanges and decentralized lending applications are typical representatives of DeFi system. In theory, decentralization can make the financial system fair and transparent without being manipulated by any institution or individual, and can solve problems such as collective currency theft and black box operations. At the same time, since there is no dedicated centralized team to operate, the system cost will be much lower. DeFi is favored by many people in the industry, but it is still at the beginning stage. A financial system that is completely built on code will actually have many errors, so whether there will be a bright future depends on the regulatory regulations and the maturity of the product, market demand and some other factors.
When it comes to CeFi, I don’t need to introduce too much. Since the banks, financial institutions, exchanges, cryptocurrency exchanges including Coinbase, OKEx, Biance, etc. that we can see currently, are almost all CeFi. It is worth noting that many articles that promote DeFi and decentralized ideas often highlight the disadvantages of CeFi, such as opacity, easy manipulation, and low security. It is an overstatement to believe that DeFi will replace CeFi. Because DeFi is not the opposite of CeFi, nor is it a competitive relationship and a replacement relationship, but each of the two has its own characteristics and should complement with each other.
CeFi is highly flexible and generally provides an overall stable solution that can quickly adapt to customer needs, so the current mainstream market is still CeFi. Meanwhile at the regulatory level, CeFi is easy to be supervised and can comply with laws and regulations. On the contrary, DeFi is naturally not conducive to regulation, and will be a big obstacle in terms of policies and regulations.