“CeDeFi, or centralized decentralized finance, is a hybrid of traditional financial services with the largely unregulated and high-risk world of DeFi. The overarching goal with CeDeFi is to combine modern and innovative financial products with the already established regulatory laws to ensure a higher level of safety when using, trading, and investing such financial instruments.”
Chances are, most of you are already familiar with the term DeFi (decentralized finance) after it exploded in popularity over the past few years. However, “CeDeFi”, otherwise known as centralized decentralized finance, is the new kid on the block and is intended to bridge the gap between the centralized and decentralized financial systems.
Contrary to what many people believe, CeDeFi is not designed to discredit DeFi or even rival it in any way. Instead, its purpose is to merge the two concepts (centralized and decentralized financial systems) to bring the best functionalities from each, resulting in a superior product for everyone involved.
How so? Well, bringing the best parts of both centralized finance and DeFi in a single portal means that more corporations can enter into space as they can more readily meet conventional financial regulatory standards and become legitimized much more easily.
While many crypto purists may turn their nose up at the notion of centralization, it’s hard to ignore the benefits of bringing in some much-needed regulation to what is often considered to be the “wild west” of the financial industry. In addition to this, CeDeFi may attract high-quality projects, presenting the opportunity for many new prospects and potentially innovative products in the industry.
What Is CeDeFi?
One of the most compelling and alluring aspects of DeFi is the decentralization itself. However, this very same aspect holds DEFI back in many ways, acts as a significant obstacle from becoming adopted in the mainstream.
The vast majority of the DeFi projects out there are still extremely obscure (despite the quality of their product), and this obscurity puts off many potential investors and consumers. And who can blame them? The whole DeFi space is largely unregulated, at least compared to centralized finance, anyway.
Of course, this does not instill confidence in consumers, which is why many DeFi enthusiasts believe some sort of merger between the two worlds is a necessary step towards creating a better functioning, more prosperous, and efficient financial system.
In many ways, CeDeFi was born when Binance introduced the Binance Smart Chain as its venture into DeFi. The term “CeDeFi” itself was coined by the CEO of Binance, Changpeng Zhao. The Binance Smart Chain intends to provide liquidity for protocols via grants while also assisting in creating economic activities to attract more users. As a result, Binance is expected to support some of the most successful and profitable CeDeFi-based projects, at least in short to medium term. However, how this new trend plays out, in the long run, is still largely up for debate.
Benefits of CeDeFi
Here are some of the key benefits of the new CeDeFi industry:
- Lower risk – All of the projects that are listed on the Binance Smart Chain are vetted, audited, and regulated.
- Lower transaction fees compared to DeFi – Users can benefit from the CeDeFi infrastructure as they are encouraged to use DeFi’s capabilities but at a lower transaction fee. Various DeFi protocols, such as liquidity aggregators, yield farming tools, and lending protocols, are available at a much lower fee.
- Better for developers – CeDeFi enables developers to write and deploy smart contracts at a fraction of the cost they would pay on Ethereum. It also assists them in giving them a platform to test their projects at a lower cost.
- It’s much more accessible – Before CeDeFi, many of the DeFi projects were largely inaccessible to less knowledgeable participants in the market, which caused a significant bottleneck for many projects. With CeDeFi, many new users can now enjoy easy access to these projects with the added benefit of increased security, control, and transparency.