The growing demand of the Centralized Decentralized Finance (CeDeFi) has grabbed the attention of the firms and professional institutions worldwide. One of the most prevailing trends these days, that would have an influence over the blockchain domain is the centralized decentralized trend. The ones who have interest in the blockchain technology, are very much into the concept of CeDeFi. So here is a comprehensive discussion about the centralized decentralized finance that will allow you to learn more about it and know the pros and cons of CeDeFi technology more effectively.
What is CeDeFi?
The Centralized Decentralized Finance is actually the combination of Centralized Finance (CeFi) and Decentralized Finance (DeFi). The CeDeFi was developed when the features and characteristics of both CeFi and DeFi were combined together.
Before the development of CeDeFi, there were these two financial systems existing in the crypto ecosystem, the CeFi was a daily life financial system operating through the banks, whereas the DeFi was used to cater the needs of the cryptocurrencies and the smart contracts.
What is CeFi?
The Centralized Finance (CeFi) is a regulated and controlled system that does not allow the access to everyone. It allows the transaction of funds and the borrowing and lending of cryptocurrency among the users through a controlled protocol.
The cryptocurrency is stored as an indemnity by the customers when they buy any funds, or they earn any profit over the currency they lend. The online belongings and assets of the users are safeguarded by the CeFi protocol. The safety of the funds is handed over by the user to the CeFi platform and it performs its function to earn maximum profit out of it. The funds could be stolen or scammed in case the cybercriminals attack the CeFi platform.
The CeFi platforms are more popular than the DeFi platforms. They are used all over the world due to increased control. The mainly used CeFi platforms are Diem, CoinBase and Binance. However, as the CeFi platforms had the involvement of the third party that resulted in high transaction charges and heavy fees, The authenticity and transparency level of the CeFi system was also lessened and the people lost the overall control over their assets, this made the people to lean towards the DeFi system.
What is DeFi?
The Decentralized Finances (DeFi) consists of a number of blockchain technologies that may contain services and instruments to facilitate the customers. It provides multiple financial tools and techniques that may assist the users in the blockchain domain. The DeFi system does not act as the conventional systems such as the credit cards or the banks.
The Decentralized Apps (dApps) could be used to access the Decentralized Finance (DeFi) systems. The dApps operate independent of any centralized power such as brokers, firms, banks, credit or debit cards. They work on direct collateral connection between the two parties. As the DeFi system does not require any permission, so the financial transactions such as taking or giving some one funds, could be done through it.
In the Centralized finance (CeFi), the user has no control over their own crypto assets, and they never get the hold over the private keys. Only the centralized authority can get its hands over all the trade happening. The rules and guidelines also vary with time and the prices and charges also change with the fluctuating market trends.
On the other hand, as there is no centralized authority in the DeFi system, the users have complete hold over their assets and funds, and they handle their transactions themselves. Being a blockchain based system, it permits the users that they can carry out the trade, store their funds or buy and sell their assets on their own.
The CeFi protocol is user friendly and feasible for crypto assets. On the contrary, the DeFi system can be accessed by anyone easily and no KYC procedure is required for it.
How were CeDeFi Protocols Introduced in the Crypto Market?
The concept of CeDeFi system gained momentum due to the active role of the Binance Chain. One should be aware of the fact that Binance is the largest dealt cryptocurrency all over the world. The CEO of the Binance company, Changpeng Zhao came up with the concept of Binance Chain in April 2019 and then initiated the process in September 2020. He coined this term during the launch of the Binance Smart Chain.
Due to the effective functioning of the smart contracts, Ethereum gained popularity. In order to compete the Ethereum in the crypto domain, Binance also came up with the idea of creating a blockchain network that would be attributed with the DeFi characteristics.
For this purpose, the already existing blockchain network of Binance was restructured as the Binance Smart Chain by the firm. It is a subdivision of Ethereum, whose main purpose was to increase the number of transactions occurring simultaneously and to decrease the charges for it unlike Ethereum. It also free the users from the issue of high network traffic that slowed down the transaction process.
The BNB network got popularity after its inception. Both the smart chain and the Binance chain got the attention of the developers, traders, investors, and researchers worldwide. Though the system has to become centralized and regulated that was also objected by a number of people who opposed this concept, yet the CeDeFi protocol reached the heights of popularity within no time.
However, the traders can also use the Midas platform, to increase their income via using the CeDeFi protocol. The Midas platform has claimed that they protect and secure the customer’s investment funds via their safety backend methods that are present in the form of huge networks. These networks secure the customer assets in the rapidly fluctuating market trends.
The Midas online crypto market is safeguarded through consolidating it with the updated transfer technology and handing it over in the guardianship of the eminently secured Fireblocks cryptocurrency.
What are the Functionalities of Binance Chain and Smart Chain Networks?
To have a better understanding of the CeDeFi, let us discuss the characteristics of the Binance Smart Chain. Here is a detailed comparison of the Binance Chain and Smart Chain. Binance Chain has many similarities in terms of attributes to the other blockchains. In addition to many other online crypto assets, the Binance Chain can also send the BNB tokens and also receive them in return.
The exchange in the Binance network requires no permissions, this can help in taking the order from the sender or the receiver easily. The decentralization of Binance Chain exchange also allows it to borrow the digital assets from other existing blockchains. Some of the distinct features of the Binance Smart Chain are given below.
- Validators or PoSA
PoSA is the term used for the Proof of Stake Authority. It is the most distinct feature of the Binance Smart Chain. The PoSA mechanism runs on the basis of mutual consensus and provides safeguard and regulation with the validators. In addition to this, by using the PoSA mechanism, the costs could also be decreased by using Smart Chain. This mechanism is also used to block the process for about 5 seconds with the help of PoSA.
- Interoperability Profits
The cross-chain transfers could be made better by using the benefits of interoperability in a Smart Chain. The mechanism could be used to obtain better performance in the Binance Chain and by providing scalable dApps in the market. Providing all these services and features, the performance of the Binance Chain could be made a lot better in the CeDeFi domain.
- Ethereum Virtual Machine Compatibility
The Smart chains and Smart contracts can easily be integrated with the Ethereum Virtual Machines. These are used for decreasing the transaction charges and improving the transaction speed, thereby making it a lot better. As the Smart contracts are compatible with the Smart Chain, this is why they can function better with the EVM too.
- On-chain Governance
The on-chain governance is another distinct feature of the Binance Chain. The force of the community could be consolidated with the decentralization of the protocol by using the Proof of Stake Authority mechanism. The local BNB token could be utilized as the gas fee source for the execution of smart contract in the Smart Chain mechanism.
What is the Binance Centralized Decentralized Finance (Binance CeDeFi)?
Many similar characteristics could be drawn out between the Smart Chain and the Decentralized Finance (DeFi) platforms. In case, any illicit activity is detected by the regulatory validator nodes then, they could be punished by submitting a request against them.
The CeDeFi system is created with the union of both CeFi and DeFi systems. It contains the characteristics of both the protocols. Smart chain can also be subjected to any kind of false activity even while being regulated by a central authority. This issue though does not decrease the importance of CeDeFi in the Binance Chain.
The Total Value Locked have also added to the increasing demand of the Binance Centralized DeFi. As the usage of TVL is increasing in the Smart Chain on Binance, one can also think that the concept of CeDeFi was actually the fork of the Binance Smart Chain that could also be easily integrated with the Ethereum blockchains.
The usage of the CeDeFi is gaining momentum slowly and it had found its applications in a number of places such as NFTs, gaming and most importantly in the DeFi mechanism. If the centralization process has nothing to do with the aim of the investor, he can achieve his particular goals in lesser time as compared to the Ethereum blockchain.
How Does the CeDeFi system operate?
The CeDeFi system provides the same services as the Decentralized Finance but just by being centralized. It gives the users the advantage of using the decentralized protocols such as liquidity aggregators, lending protocols, yield farming instruments and decentralized exchanges (DEXs). People can have the access to these products while enjoying the additional advantages of centralized finance system (CeFi).
The Decentralized finance (DeFi) could be accessed by anyone and require no permission for the access, but the CeDeFi systems are centralized, and they require permission to be accessed. These CeDeFi protocols are governed by one or a group of small organizations that will have the control over them and regulate them properly. This behavior is similar to the Centralized finance (CeFi) system.
The main purpose of creating a CeDeFi system, by the union of both CeFi and DeFi is to make the normal features of the cryptocurrency better by improving the transaction speed and making it faster, by making the security system better, to decrease the charges of the crypto systems and to increase the transaction volume.
Are there any CeDeFi Protocols?
MakerDAO, Compound and Synthetix are some of the most commonly known CeDeFi protocols. All these mentioned platforms are constructed on the highest level of the Ethereum blockchain. These platforms provide the users features that are similar to the DeFi system. Another platform called Midas is also a CeDeFi protocol that provides regulatory services to the users for their crypto assets. It added the CeDeFi protocol to its platform recently in August 2022.
The Midas company has the aim to build smart contracts similar to the DeFi system so that the assets could be handled feasibly while dealing with the lending systems. This makes the borrowing and lending of stuff easier and also provides leverages to the users that increases the addition of overall capital in the DeFi system. Midas also has the objective to integrate the DeFi services with the profile of the users where they can also access the tools and instruments from the CeFi protocol.
What are the Advantages of CeDeFi?
Using the CeDeFi mechanism enables the users to allow the exchange of the crypto assets without any centralized authority being involved. Some of the important pros of using the CeDeFi mechanism are given below.
- Lower Fees
Using the networks that are not Ethereum based, the transactions could be carried out at relatively lower rates through the CeDeFi protocol with a few mediators involved in the process. Lower cost is one of the main advantages of using CeDeFi.
The DEX transactions that are carried out through Ethereum could lead to expenditure of hundreds of Dollars for a single transaction. This also leads to heavy network traffic and slow process. On the other hand, using the CeDeFi protocol could solve this issue in no time.
- Better Security
The improved security mechanism also proves difficult for the cybercriminals to get their hands over the CeDeFi accounts. As the networks are decentralized, it become difficult for the hackers to steal any funds as it becomes hard for them to track the real owner.
- Accessibility
Anyone who possesses the Ethereum wallet could get his hands over the CeDeFi protocols. It has nothing to do with the experience in trading. It allows every type of users even the ones with less trading experience to access the network without permission. It decreases the barriers for the new users and allow them to explore about the CeDeFi networks and its features.
- Improved Speed
The transactions that are carried out through the conventional banking methods are slower than the ones carried out through the CeDeFi systems. The CeDeFi protocol carry out the transaction on its own and does not require any third-party approval, that may take weeks in other cases.
- Flexibility
The CeDeFi protocols are designed in a way to cater the needs of every user. The protocol could be shaped more easily than any traditional banking system.
- Securing Profits
The CeDeFi protocol could be used to balance the growth in the fluctuating market trends. It does so by saving the profit earned in the better days and investing them on the days when the performance is not up to the mark. It leads to a uniform growth in the trade.
What are the Disadvantages of CeDeFi?
Though getting popular among the users, there are still many cons associated with CeDeFi. Some of them are given below.
- Complexity
Due to many complexities associated with the proper functioning of the CeDeFi, it takes a lot more time for the users to learn about it properly.
- Dependence on Ethereum
the CeDeFi protocol has a lot of dependence on the Ethereum blockchain. In case, if Ethereum faces a downfall, the CeDeFi users will also be affected badly.
- Still New in the Crypto Ecosystem
The CeDeFi is still developing and new to the users. It takes time to adapt to the fluctuating market trends.
- Risks of Scams
As there is no proper regulation in the CeDeFi protocol, there is also a higher risk of scams and phishing activities, therefore one should be careful in regards of his funds and assets.
Conclusion
The CeDeFi platforms are already eager to create better opportunities for the users. As digitalization of finances gained momentum, the concerns regarding the transparency and the control over the assets arose. Therefore, the decentralized system gained the attention of the users globally and the CeDeFi protocol became popular among the masses.
Tokenhell produces content exposure for over 5,000 crypto companies and you can be one of them too! Contact at info@tokenhell.com if you have any questions. Cryptocurrencies are highly volatile, conduct your own research before making any investment decisions. Some of the posts on this website are guest posts or paid posts that are not written by Tokenhell authors (namely Crypto Cable , Sponsored Articles and Press Release content) and the views expressed in these types of posts do not reflect the views of this website. Tokenhell is not responsible for the content, accuracy, quality, advertising, products or any other content or banners (ad space) posted on the site. Read full terms and conditions / disclaimer.
