CeDeFi: the merge of DeFi and CeFi concepts is a relatively new term, but it is already being adopted by several crypto companies around the globe. As blockchain technology matures, more and more companies will start using it to build their businesses.
CeDeFi is the fusion of some aspects of conventional finance with present DeFi characteristics. CeDeFi protocols are often managed by a single entity or a small number of entities, in contrast to DeFi protocols, which are permissionless and available to anybody who wishes to use them.
What exactly is CeDeFi? How does it differ from other types of protocols? What are the benefits of CeDeFi in the current Web3 scenario? Let’s find out!!
What is CeDeFi?
CeDeFi combines the top characteristics of CeFi and DeFi into one financial system enabling users to access DeFi products such as decentralized exchanges (DEXs), liquidity aggregators, yield farming tools, and lending protocols while still reaping the perks of CeFi systems.
Origin of CeDeFi
Well, Binance can be held partially responsible for the CeDeFi concept. One of the largest cryptocurrency exchanges, Binance, made the decision to establish its own blockchain network, called Binance Chain, in April 2018.
The Binance Chain was designed to compete with other blockchain networks like Ethereum by creating a quick blockchain that could process a large number of transactions.
The Binance Chain blockchain, however, did not enable smart contracts and did not permit programmers to create applications on top of its blockchain network. On the other side, a lot of apps were developed on the Ethereum network because it permitted smart contracts, which resulted in the development of DeFi.
As a result, Binance made the decision to develop a different blockchain network that can compete with the Ethereum blockchain network and support smart contracts. This brings up the scalability problems with blockchains and the infamous scalability trilemma.
Also Read: Binance BNB Chain Unveils Enhanced Technical Roadmap For 2022
The scalability paradox asserts that it is nearly impossible to build a blockchain network without sacrificing any of the three criteria of security, decentralization, and scalability, as we covered in our introduction to blockchain scalability solutions.
In this instance, Binance chose to compromise on the decentralization of the blockchain in order to achieve scalability rather than enabling smart contracts on its blockchain network and reducing transaction throughput.
The Binance Smart Chain is now available; it is a fully programmable blockchain that supports smart contracts.
However, it is generally known that it takes years to develop a blockchain network from the ground up with smart contract functionality. Additionally, attracting programmers and users to new blockchain networks that use various protocols and programming languages requires a lot of work.
So, Binance made the wise decision to play it safe. It created a branch of the existing Ethereum network and optimized it for fast transaction processing and minimal costs. Decentralization and censorship resistance were both damaged by the Binance Smart Chain at the same time.
Examples of CeDeFi
While many of the crypto projects are investigating using DeFi advancements while maintaining a CeFi design, a few others have already published solutions. Here we’ll showcase five of the most exciting CeDeFi initiatives that you should keep tabs on.
Bybit
Bybit is a cryptocurrency exchange and trading platform with its main office in the British Virgin Islands, that focuses on derivatives products. CEO Ben Zhou established Bybit in 2018 with the intention of assembling a group of experts in investment banking and fintech.
Additionally, Bybit is thinking about providing its centralized solutions in a more decentralized manner. This suggests that a CeDeFi ecosystem centered on Bybit’s current products may soon be available to users.
Ben Zhou was interviewed recently where he voiced hope for the DeFi’s future, “One of the primary advantages of decentralized finance is that you don’t need a central authority … While the legacy financial ecosystem will continue to play a sizable role, shifting towards decentralization will create new possibilities and growth opportunities.”
Nexo
CeFi firm Nexo offers a variety of goods and services, including, a card, loan options, and the NEXO utility token.
The regulatory scope serves as the central axis for the platform’s approach to CeDeFi integration as the crypto sector still faces various regulatory challenges today, particularly in the emerging DeFi realm.
Nexo’s CeDeFi solutions can allow controlled DeFi advances even while the project is centralized, protecting both CeFi and DeFi consumers.
Midas Investments
A custodial CeDeFi investing platform called Midas.Investments offers market-beating yields on a variety of cryptocurrencies, including BTC, ETH, and USDC. With the use of algorithmic infrastructures and round-the-clock portfolio monitoring, Midas aims to combine the simplicity of CeFi with the transparency of DeFi methods.
Due to the integration of Fireblocks with a wide range of DeFi yield schemes, Midas’ yields are made feasible by a diversified investment strategy. Investors’ money is well-safeguarded thanks to Fireblocks’ multisignature policy and non-custodial wallet technology, which makes Midas the best cryptocurrency investing platform.
Aside from all the benefits and hassle-free interactions, Midas’ token offers investors a 27% annual percentage yield, protected from market volatility by the revenue stream and flexible utility of the company.
Each of these enables investors to generate long-term passive income. More than 10,000 active investors and $300 million in assets under management have been drawn to Midas in the four years since its establishment, further assisting it in realising the CeDeFi mission.
CoinZoom
The U.S. based cryptocurrency exchange CoinZoom aims to provide a one-stop shop that facilitates both crypto trading and the practical application of digital assets. The regulated exchange provides a Visa debit card for cryptocurrency purchases and allows customers to invest in any of the over 30 listed tokens.
Through its Ethereum-based token, ZOOM, CoinZoom is also bridging the gap between conventional finance and cryptocurrencies. The ability to gain a variety of DeFi rewards makes these tokens the center of CoinZoom’s decentralized ecosystem.
CoinZoom users can earn passive DeFi income by staking ZOOM with the assistance of Dash and Algorand (ALGO), which is one way to do so (DASH).
Binance Smart Chain
Binance CEO Changpeng Zhao invented the phrase “CeDeFi” during the launch of Binance Smart Chain (BSC). A $100 million seed fund launched by the BSC in 2020 was intended to promote a merger between CeFi and DeFi.
Due to its Proof of Staked Authority (PoSA) consensus mechanism, Binance is heavily involved in the upkeep and seamless operation of the chain. BSC is currently the foundation of many DeFi initiatives, and both centralized and decentralized environments are favorable to them.
Unizen
A centralized and a decentralized infrastructure are combined in Unizen’s smart exchange ecosystem to bridge both worlds. This smart exchange, a pioneer in its field, aims to remove KYC, liquidity, and slippage barriers from the crypto ecosystem.
The organization recently unveiled a smart exchange that combines different cryptocurrency products and exchanges onto a single platform. One of the new CeDeFi ventures that seem to be gaining popularity with investors and traders is Unizen’s smart exchange.
Users of the Unizen smart exchange should be able to browse a large selection of cryptocurrency items at their selected KYC tolerance. Additionally, Unizen will soon roll out a multi-dynamic staking project that will allow users to stake ZCX, the platform’s governance token, on Binance Smart Chain (BSC).
Also Read: How Celsius crashed Crypto Market?
Advantages of CeDeFi
CeDeFi offers a number of noteworthy advantages in addition to combining the best of centralized and decentralized finance, such as the following:
1. Reduced Fees
Through the CeDeFi protocol and a few intermediaries, transactions on networks that are not Ethereum-based could be executed at comparatively lower prices. One of the key benefits of using CeDeFi is its lower cost.
The DEX transactions that are conducted through Ethereum may result in a single transaction costing hundreds of dollars. Additionally, this causes a delayed procedure and considerable network traffic. However, the CeDeFi protocol could quickly address this problem.
2. Accessibility
The CeDeFi protocols are accessible to everyone using the Ethereum wallet. It has nothing to do with trading expertise.
Every user type, including those with less trading experience, is given unrestricted access to the network. It lowers the hurdles for new users and gives them more freedom to learn about CeDeFi networks and their capabilities.
3. Enhanced Speed
Transactions made using traditional banking procedures take longer to complete than those made using CeDeFi systems. The CeDeFi protocol executes the transaction on its own and does not need any outside permission, which could take days in some circumstances.
4. Flexibility
Every user’s needs are taken into account in the design of CeDeFi protocols. CeDeFi is comparatively easier to shape than any conventional banking system.
5. Interoperability
A large range of potential applications is supported by the CeDeFi protocols’ simple ability to communicate with other Ethereum-based protocols.
6. Greater Safety
The enhanced security system makes it more difficult for fraudsters to access CeDeFi accounts. Since the networks are decentralized, it is more challenging for hackers to steal money because it is more difficult for them to identify the true owner.
Disadvantages of CeDeFi
Despite becoming increasingly popular among the crypto community, CeDeFi still has a lot of drawbacks. Here are a few of the disadvantages of CeDeFi.
1. Scams
One should be careful with their money and assets because there is no effective regulation in the CeDeFi protocol, which significantly increases the risk of scams and phishing attacks.
2. Complexity
It takes a lot longer for consumers to fully understand the CeDeFi due to the numerous complexities involved in its operation.
3. Ethereum dependency
The CeDeFi protocol is heavily reliant on the Ethereum blockchain. If Ethereum faces a huge hazard, users of CeDeFi will suffer severe consequences as well.
Conclusion
CeDeFi offers a possible resolution to two crucial problems. It will first allay the mounting doubts about the impartiality of established or centralized mediators. Additionally, it provides a great framework for the incorporation of DeFi applications and products into well-established financial systems.
If implemented properly, CeDeFi has the potential to alter both the financial and blockchain ecosystems significantly. With all the talk about wallets, metaverse, and DeFi, CeDeFi will make all of these things simple for users and make them feel like web2-style digital wallets.
That will then cause financial institutions to view cryptocurrency from a different angle, and banks would not only want a piece of it, but would also want to be the primary force behind expanding crypto adoption.
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