What is cefi? Definition and Concept

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what is cefi

In this way, the so-called neobanks, which only operate on the Internet and do not have branches, manage the operations. This system, unlike the DeFiis based on professionals and not on technology.

What is cefi?

The finance Centralized or CeFi are those in which the user entrusts his investments in cryptocurrencies to specialized institutions for which ethical behavior is assumed.

Therefore, we are dealing with a well-known concept in the crypto world, in this case, with a centralized authority as a base. As we will see, its main characteristic is the supposed trust that it offers to the user.

Differences between CeFi and DeFi

Let’s see some of the essential differences between both ways of understanding cryptocurrencies that, in addition, also show us the main characteristics of CeFi.

· First, about user independence, centralized ones offer less than decentralized ones (DeFi). This is because, in the former, a regulated procedure must be followed.

· Technological knowledge is necessary for decentralized ones but not for the others with professional intermediaries.

· In DeFi, the codes are open, while in the case of its counterpart, they are closed.

· Anonymity is a characteristic of decentralized finance, which does not happen when a managing entity exists.

· In DeFi, markets are decentralized, with creators promoting liquidity. However, in CeFi, the orders occur off-chain.

· In the centralized markets, there are hours to operate, but not in the others, which are open 24 hours a day.

· The smart contracts are pseudonymous in DeFi, but the user’s data must be known by law in centralized ones.

Associated risks

Let’s look at some of the risks of working with cryptocurrencies centrally.

· First of all, we must clarify that the level of risk depends on the entity and the contract conditions. That is why it is necessary to inform yourself in detail before choosing.

· Deposit guarantee funds do not support them. It is very important to keep in mind.

· Some virtual currencies like USDcoin, backed by dollars, are supervised by institutional regulators. It can be a plus or a minus, depending on your appearance.

· Some cryptocurrencies, such as the one mentioned above, are open source, and since they are referenced to fiat Money, they are mostly traded as CeFi.

CeFi lending platforms

Let’s see, to finish, what financing and investment options we find in some centralized finance platforms.

·    CELSIUS: Created in 2017 by Alex Mashinsky, it offers the possibility of lending or borrowing and has a Credit Card Y Exchange. The monthly interest payments they give you to lend depend on what they get for your Money. Their token is CEL.

·    NEXUS: Founded in 2017, it is a subsidiary of Credissimo. It offers services similar to the previous one, but the interests are paid daily. His token is NEXO.

·    BlockFi: Raise Money through venture capital investors and offer exchange and credit cards. It does not have its token.

·    YouHodler: It was founded in 2018, and although it does not have a credit card service, it has certain peculiarities that differentiate it from others. For example, higher interest rates.

  1. ·    Swissborg: It is another centralized finance (CeFi) platform. If you want high interest, you must be premium, something complicated, since it requires high initial investments. Its token is CHSB.

What is DeFI?

DeFi is decentralized finance. They are so named because their solutions are created and delivered by a specific agency free of regulation.

In the case of financial products and services, for example, this means that they can be developed and delivered without having to respond to and comply with the rules of a central bank.

This system is based on a programmable digital contract — smart contracts, or smart contracts — that is automatically generated between individuals and companies. 

Its security criterion is based on the blockchain network, a virtually inviolable defense mechanism formed by blocks with sets of information with sequential data.

Briefly, a blockchain network works as follows: each block contains a group of information. During the transaction, new blocks are created and linked to the previous ones.

Even if the network is accessed, to modify or even “steal” some data, it is necessary to unravel the codes of all the blocks that make up the network. For this, it is necessary to solve a very complex mathematical problem.

Because of this characteristic, blockchain networks are considered extremely secure and are increasingly used in different processes.

What are the pros and cons of these systems?

One of the main goals of the DeFi concept applied to the financial services market is to rebuild this system.

“ The DeFi sector is promising with blockchain technology, and we have to participate in this sector to build programmable money. 

As for the advantages of this system, following everything that has been said in this article so far about decentralized finance, it is possible to say that one of its benefits is to facilitate access to financial services and products, which contributes to more people entering this sector.

On the other hand, the lack of security remains one of its downsides, considering that it is a relatively new system and little known by banking users.

In the case of CeFi, everything is reversed. Precisely because it is regulated and meets the requirements of a regulatory entity, people have the idea that there is more security in the processes, which is an advantage of this system.

However, as we have already mentioned here, the set of rules usually imposed by institutions that work based on centralized finance ends up restricting the access of various groups of people.

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