Centralized Finance (CeFi) – what is it?

One of the key reasons for the recent growth of the cryptocurrency market is the increasing adoption of DeFi (Decentralized Finance) - a technology that allows for deposit placement on the blockchain, borrowing against cryptocurrency collateral, and doing so in a fully anonymous manner. DeFi has been rapidly developing, but the mass demand for it has also revealed certain complexities. As a result, centralized banking platforms representing the opposing ideology of Centralized Finance (CeFi) have entered the market.

Their functions are similar to DeFi protocols, but they are easier for the average user to understand, and some of the issues faced by DeFi are absent in CeFi platforms. The concept of CeFi platforms is not much different from traditional banking services. As a result, they are more familiar to a wide audience compared to the complex DeFi systems. Additionally, since they do not interact with numerous smart contracts, transaction fees can be significantly more attractive.

Although centralization goes against the original purpose of blockchain technology, it has become inevitable due to the growing popularity of cryptocurrencies. The centralization of CeFi platforms ensures the security of user funds, as they are typically stored in cold wallets outside the system, making it difficult for malicious actors to gain access to them. "Hot" wallets are used only for processing current payments and contain relatively smaller amounts of funds.

Furthermore, as a centralized platform, CeFi can take responsibility if any incidents occur. This allows them to provide support to users and guarantee static interest rates.

DeFi and CeFi have their own pros and cons, and it is likely that these solutions will coexist in parallel in the coming years, without one fully displacing the other. CeFi is a more attractive option for a broad audience that seeks a simple and secure way to earn from their cryptocurrency savings.