What is CeFi?
Centralised Finance, also known as CeFi, plays an important role in the development of the crypto industry. Originating from the concepts of banks and other financial institutions in traditional sectors, CeFi usually refers to centralised agents and products in the crypto world nowadays.
Centralised crypto exchanges are one of the most representative institutions of CeFi. At the very beginning of industrialised crypto activities, centralised exchanges acted as the agents for people who were not miners but still interested in buying their very first Bitcoins. With the development of the crypto industry, increasing altcoins enriched the portfolio and numbers of crypto exchanges. Yet the emergence of DeFi (Decentralised Finance), products of which include but are not limited to Uniswap and Aave, have become increasingly popular among the crypto community and a competitive rival against CeFi.
Is CeFi Obsolete?
Though labeled as “obsolete” by some crypto radicals, CeFi is as important as DeFi. Compared with the permissionless DeFi system, CeFi has its advantages. Ethereum, the world’s second biggest chain and where most DeFi products are connected, is known for its high gas fees and transaction cost. Despite the joint effort by other blockchain communities, DeFi is generally considered expensive to start with, while CeFi is much more cost-efficient and user-friendly. Centralised exchanges Coinspot, an Australian local crypto exchange, usually offer a much lower friction cost of transactions compared with that of decentralised exchanges. CeFi usually requires users to go through AML and KYC procedures, which makes it more regulation-compliant and can help users to better deal with hacking or rug-pull risks.
Can CeFi and DeFi co-exist?
What makes CeFi an indispensable part of the crypto community is possibly its function to bridge the fiat world and the crypto one. The growing popularity of stablecoins, such as USDT, USDC, and DAI, among people who are about to start their crypto journey, makes centralised exchange that provides such services an ideal place to begin with. The abundant resources and experiences of CeFi also make it versatile when it comes to competition against DeFi.
For instance, an increasing number of centralised exchanges are reportedly establishing venture labs to incubate DeFi products or work with prominent DeFi platforms to explore more potential. What’s more, heating competition between different blockchains has inspired CeFi to provide cross-chain or multi-chain products. Positive competition has urged CeFi to provide users with better services and products so that they can earn their fair share of the crypto market.
There is “never a dull day in crypto” as the crypto world is full of fluctuations and incidents. Both DeFi and CeFi are faced with risks of market volatility hence unstable profit rates despite their numerous benefits compared with traditional finance. DeFi is undoubtedly the ultimate choice for the crypto community, whilst CeFi outperforms DeFi in safety, liquidity and transaction cost. In the foreseeable future, CeFi will co-exist with DeFi.
