Ever since we opened our first bank accounts, we would be familiar with how they work. You entrust your money to the bank for safe-keeping and in return, you get a bit of interest, access to their network of ATMs and a host of other services.
That is Traditional Finance (TradFi).
But these days with advancements in technology, many other “types” of finance have popped up, with the promise of more efficient, cost-effective and secure ways of transacting. There’s Decentralised Finance (DeFi), Centralised Finance (CeFi) and now a whole new type called Centralised Decentralised Finance (CeDeFi).
Yes, I know it sounds like an oxymoron. But what exactly is CeDeFi and why does it matter to you and me? Let’s find out!
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. MAS strongly discourages investing in cryptocurrencies and has deemed that they are not suitable investments for the public. Readers should always do their own due diligence and consider their financial goals before investing in any investment product.
What is Decentralised Finance (DeFi)?
In short, decentralised finance allows you to perform transactions without a middleman.
In its current form, DeFi is an umbrella term for the digital ecosystem of financial services built on a public decentralised blockchain network.
As a user, this means that you can bypass the usage of banks or other financial institutions that charge you a fee for using their services. You can hold your cryptocurrencies in a digital wallet and transfer funds quickly across the globe to anyone with an internet connection. Gone are the days of waiting to transfer funds overseas!
The best part is that your funds are held by you, so you don’t have to trust anyone else to handle your crypto.
That said, DeFi is complex and not easily understood by everybody and is also at risk of fraud and scams.
What is Centralised Finance (CeFi)?
On the other hand, we have Centralised Finance. The idea behind it is that transactions are authorised and regulated by a middleman.
But wait…isn’t that just like banks?
Not exactly. Compared to TradFi, CeFi typically provides a more cost-effective and round-the-clock alternative to transacting thanks to blockchain technology.
The downside of CeFi is that you will have to trust the institution with your funds and you won’t know what is going on behind the scenes.
If you’ve been following Seedly or kept up with cryptocurrency news, you would have heard of CeFi disasters such as Celsius, Three Arrows Capital and BlockFi.
What is Centralised Decentralised Finance (CeDeFi)?
Enter CeDeFi, the newest kid on the block that promises to bring the best of both worlds into one.
CeDeFi platforms, such as Singapore-based CakeDeFi, are centralised platforms that open up the “black box”. In other words, they give you full access to information that you need including regular cash flow reports, and full transparency regarding blockchain nodes, liquidity mining pools, and rewards.
With a “nothing to hide” attitude, it is easier for users to trust such platforms while benefitting from lower costs, ease of access to DeFi and a regulated service.
However, this comes at a cost as a CeDeFi platform dictates what DeFi services that its users can access. This is a double-edged sword as you may not have the freedom of choice. On the flip side, CeDeFi platforms can help you filter and access DeFi protocols with an added layer of security.
All in all, CeDeFi is still new and unproven. Thus, users should make sure to use reputable and regulation compliant platforms.
