CeDeFi: The merging of DeFi and CeFi concepts is a relatively new term, but it is already being adopted by several crypto companies around the world. As blockchain technology matures, more and more companies will start building their businesses.
CeDeFi is the merging of some aspects of conventional finance with today’s DeFi features. 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 anyone who wants to use them.
What exactly is CeDeFi? How is it different from other types of logs? What are the advantages of CeDeFi in the current Web3 scenario? let’s find out!!
What is CeDeFi?
CeDeFi combines the key characteristics of CeFi and DeFi into one financial system that allows users to access DeFi products such as decentralized exchanges (DEXs), liquidity aggregators, yield farming tools and lending protocols while reaping the benefits of CeFi systems.
Origin of CeDeFi
Well, Binance can be partially blamed for the CeDeFi concept. One of the largest cryptocurrency exchanges, Binance, made the decision to launch its own blockchain network called Binance Chain in April 2018.
Binance Chain was designed to compete with other blockchain networks like Ethereum by creating a fast blockchain that could process large numbers of transactions.
However, Binance Chain’s blockchain did not enable smart contracts and did not allow programmers to build applications on its blockchain network. On the other hand, many apps were developed on the Ethereum network because it was allowed smart contractswhich led to the development of DeFi.
As a result, Binance made the decision to develop another blockchain network that can compete with the Ethereum blockchain network and support smart contracts. This brings up the scalability issues with blockchains and the infamous scalability trilemma.
Also read: Binance BNB Chain unveils enhanced technical roadmap for 2022
The scalability paradox states that it is almost impossible to build a blockchain network without sacrificing one of the three criteria of security, decentralization and scalability, as we covered in our introduction to blockchain scalability solutions.
In this case, Binance chose to trade off blockchain decentralization 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 well known that it takes years to develop a blockchain network from scratch with smart contract functionality. In addition, attracting programmers and users to new blockchain networks using different 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 corrupted simultaneously by the Binance Smart Chain.
Examples of CeDeFi
While many of the crypto projects are exploring using DeFi advances while maintaining a CeFi design, some others have already published solutions. Here we feature five of the most exciting CeDeFi initiatives to keep an eye on.
bybit
Bybit is a cryptocurrency exchange and trading platform headquartered in the British Virgin Islands that focuses on derivative products. CEO Ben Zhou founded Bybit in 2018 with the intention of assembling a group of investment banking and fintech experts.
In addition, Bybit is thinking about offering its centralized solutions in a more decentralized way. This suggests that a CeDeFi ecosystem focused on Bybit’s current products could soon be available to users.
Ben Zhou was recently interviewed where he expressed hope for the future of DeFi: “One of the main benefits of decentralized finance is that you don’t need a central authority… While the legacy financial ecosystem will continue to play a significant role and there will be a shift towards decentralization, the new one Creating opportunities and opportunities for growth.”
connection
CeFi firm Nexo offers a variety of goods and services, including a card, credit options, and the NEXO utility token.
The regulatory domain serves as a central axis for the platform’s approach to CeDeFi integration, as the crypto sector continues to face various regulatory challenges even today, especially in the burgeoning DeFi space.
Nexo’s CeDeFi solutions can enable controlled DeFi progress even if the project is centralized, protecting both CeFi and DeFi consumers.
CoinZoom
US-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 offers a Visa debit card for cryptocurrency purchases and allows customers to invest in any of the 30+ listed tokens.
CoinZoom also closes the gap between conventional finance and cryptocurrencies through its Ethereum-based token ZOOM. The ability to earn a variety of DeFi rewards makes these tokens the center of CoinZoom’s decentralized ecosystem.
CoinZoom users can generate passive DeFi income by using ZOOM using Dash and Algorand (ALGO), which is a way to do it (DASH).
Binance SmartChain
Binance CEO Changpeng Zhao invented the term “CeDeFi” during the launch of Binance Smart Chain (BSC). A $100 million seed fund launched by the BSC in 2020 was intended to encourage a merger between CeFi and DeFi.
Due to its Proof of Stakes Authority (PoSA) consensus mechanism, Binance is heavily involved in the maintenance and smooth operation of the chain. BSC is currently the foundation of many DeFi initiatives, and both centralized and decentralized environments are favorable to it.
Unizen
A centralized and a decentralized infrastructure are combined in Unizen’s intelligent exchange ecosystem to bridge the two worlds. A pioneer in its field, this smart exchange 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 on a single platform. One of the new CeDeFi projects that seems to be gaining popularity among investors and traders is the Unizen smart exchange.
Unizen Smart Exchange users should be able to browse a wide range of cryptocurrency items with their selected KYC tolerance. Additionally, Unizen will soon launch 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 the Crypto Market?
Benefits of CeDeFi
Along with combining the best of centralized and decentralized finance, CeDeFi offers a number of notable advantages such as the following:
1. Reduced Fees
Thanks to the CeDeFi protocol and some intermediaries, transactions on non-Ethereum networks could be carried out at comparatively lower prices. One of the main benefits of using CeDeFi is the lower cost.
The DEX transactions conducted over Ethereum can result in a single transaction costing hundreds of dollars. In addition, this causes a delayed procedure and significant network traffic. However, the CeDeFi protocol could quickly fix this problem.
2. Accessibility
The CeDeFi protocols are accessible to anyone using the Ethereum wallet. It has nothing to do with trading know-how.
Every type of user, including those with less trading experience, gets unlimited access to the network. It lowers the hurdles for new users and gives them more freedom to learn about CeDeFi networks and what they can do.
3. Increased speed
Transactions performed using traditional banking procedures take longer than transactions performed using CeDeFi systems. The CeDeFi protocol executes the transaction on its own and does not require outside approval, which can take days.
4. Flexibility
When designing the CeDeFi protocols, the needs of each user are taken into account. CeDeFi is comparatively easier to design than any conventional banking system.
5. Interoperability
The CeDeFi protocols’ easy ability to communicate with other Ethereum-based protocols supports a wide range of potential applications.
6. More security
The advanced security system makes it difficult for scammers to access CeDeFi accounts. Since the networks are decentralized, it is harder for hackers to steal money as it is harder for them to identify the real owner.
Disadvantages of CeDeFi
Although CeDeFi is gaining popularity in the crypto community, it still has many disadvantages. Here are some of CeDeFi’s downsides.
1. Fraud
One should be careful with one’s 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 much longer for consumers to fully understand the CeDeFi as it is numerous and complicated with how it works.
3. Ethereum Dependence
The CeDeFi protocol is heavily dependent on the Ethereum blockchain. If Ethereum faces great danger, CeDeFi users will also suffer severe consequences.
Conclusion
CeDeFi offers a possible solution to two crucial problems. It will initially allay growing doubts about the impartiality of established or centralized mediators. Additionally, it provides a great framework for integrating DeFi applications and products with established financial systems.
If implemented properly, CeDeFi has the potential to significantly transform both the financial and blockchain ecosystems. With all the talk about wallets, Metaverse and DeFi, CeDeFi will make all of these things easy for users and make them feel like Web2-style digital wallets.
That will then lead to financial institutions looking at cryptocurrency from a different angle, and banks would not only want a piece of it, but also want to be the main force behind the expansion of crypto adoption.
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