What is CeFi and how are they different from DeFi?

Highlights

• In DeFi, it is essential to charge transaction fees, whereas, in CeFi, the platform can offer transaction services at no cost
• Unlike CeFi, DeFi gives complete control to the users over their assets
• The speed of executing transactions is relatively high in CeFi as well as DeFi

As the name suggests, CeFi (Centralized Finance), the transactions and trading records of the users are processed and managed in a centralized way. The platform facilitates the selling and buying of cryptocurrencies through an intermediary. This intermediary is often exchanged with an order book.

The main goal of CeFi is to create crypto investment opportunities and financial services for people. Through this, it offers high yields with lesser security concerns. CeFi platforms are user-friendly and well-refined compared to DeFi (Decentralized Finance).

Unlike CeFi, DeFi works on implementing 100 per cent decentralization in the finance and cryptocurrency ecosystems and is open source as opposed to CeFi.

DeFi vs CeFi

One of the biggest differences between CeFi and DeFi is that the former is a regulated system compared to the latter. Some other aspects also differentiate DeFi and CeFi on various levels. Some are mentioned below:

1. Transaction costs

In DeFi, it is essential to charge transaction fees; in CeFi, the platform can offer transaction services at no cost. This is because the platform relies on the AML (anti-money laundering) verification of their clients.

2. Custody

Unlike CeFi, DeFi provides full control to the users over their assets. However, this can bring great responsibility to the users. In case of any technological hazard, the users are bound to bear the repercussions.

3. Speed

Although it depends upon the platforms individually, the speed of executing transactions is relatively high in CeFi and DeFi.

4. Cross-chain services

Many of the cryptocurrencies are often traded on CeFi. Generally, DeFi does not support such tokens due to the complexity involved in it. Also, there is a delay in the completion of the cross-chain exchange.

5. Fiat conversion flexibility

CeFi platform works on a fiat currency model that is involved in the exchange. This makes things comparatively easier for the user to trade in CeFi. Further, CeFi offers flexibility that allows the control to customers for ensuring fiat conversions.

Bottom Line

CeFi and DeFi are the two sides of the same coin. They strive to reach the same goal of making crypto trading better and more popular than traditional finance. However, the approach for each platform towards the goal is different.

CeFi offers crypto-to-fiat trades, fair trade, customer support, and more. But, to make it go smoothly, it requires trust from users towards the platforms. Once it gains trust, it will enhance the ability of the platforms to hold and manage the money effectively. DeFi, on the other hand, does not require this, but at the same time, it also does not offer some of the major functions and benefits of CeFi.

To start with your crypto investment, understand both sides and weigh them in your perspective. Be analytical and careful while choosing your service provider and platform. Before deciding to invest, be critical in your approach and do not have a colored vision towards any platform.

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