Defi and Cefi are popular acronyms for decentralized finance and centralized finance. Of late, both these platform-types have expanded their popularity riding on the back of a new range of solutions enabled by a wide variety of digital assets. Before moving into the comparative benefits and drawbacks of these platforms, let us have a quick look at what DeFi and CeFi actually imply.
DeFi: DeFi Solutions offer decentralized protocols, platforms, and services that have completely removed the scope of traditional intermediaries, such as banks and government-backed financial institutions, from any type of transaction dynamics.
CeFi: CeFi or centralized finance strikes a middle ground. It offers financial services aimed at bridging the gap between the platforms of legacy finance and the new economy of digital assets. It does not do away with the role of intermediaries while dealing in both digital assets and fiat currencies.
Merits of the DeFi Platforms
- In decentralized platforms, permissionless protocols ensure that no third-party gets involved in a peer-to-peer transaction. In traditional finance, transactions are subject to authorization by the respective banks or financial institutions. DeFi platforms are also open for anyone to join without having to apply and take permission from a centralized body.
- The DeFi service, owing to its distributed ledger technology or DLT, makes all its transactions public for the participants to see. It ensures a high level of transparency.
- Users are free to trade the assets yielded by DeFi platforms on external platforms.
Drawbacks of the DeFi Platforms
- Lack of centralized authorities often results in risks emanating from a lack of chargeback features or adequate safety-net mechanisms.
- Lack of centralized authority also makes DeFi platforms suffer from a lack of accountability and makes them more prone to scams. Losing personal wallet address or private keys result in loss of assets owing to the absence of intermediaries who could help to recover.
Merits of the CeFi Platforms
- CeFi platforms, owing to their legacy and credibility, have been able to develop highly intuitive and convenient user experiences.
- They are equipped to offer a wider range of traditional finance services such as direct support for fiat currencies. This is partially the reason why CeFi platforms still outnumber the DeFi ones by a large margin.
- CeFi offers custodial solutions that share the risk of new users in managing seed phrases and keeping the addresses and keys safe.
Drawbacks of the Cefi Platforms
- In centralized platforms, users miss the opportunity of having autonomy over their funds.
- These platforms have no incentives for almost 1.7 billion unbanked people in the world who can’t pursue many financial opportunities for their inability to get into any system that has tight regulatory requirements.
Irrespective of their merits and drawbacks, the rise of DeFi and CeFi has unitedly encouraged a lot of crypto services to flourish. One of the most significant of these services has been crypto lending. The rise of cryptocurrency lending platforms has made convenient crypto loans available for a wide range of users. Moreover, lending cryptocurrency has also been beneficial for people who don’t want to have their crypto holdings sit idle.
Coinrabbit is one of the top crypto lending platforms that can arrange for instant crypto loans, without any credit check or registration, at a very low rate of 5% APR. The crypto lending programs of Coinrabbit start from as low as 30 USDT going up to any sum the borrower wants to take. To borrow, one can use BTC or ETH as collateral. While repaying the cryptocurrency loan, the user pays interests at a fixed rate of 5% irrespective of the prevailing rate of the BTC or the ETH. The interest is charged only during repayment without burdening the user with monthly installments.
It can be reasonably assumed that the flourish in both DeFi and CeFi ecosystems would encourage many such cost-effective and efficient services and solutions to come up in the future.