INTRODUCTION.

This is another controversial topic again where two sectors in the same ecosystem or financial market have a face off. CEFI is short for Centralized Finance. DEFI which of course is the direct opposite is the short form for Decentralized Finance which is currently garnishing so much attention in the space since 2020. Many at times it looks like these two are at war over who will eventually become the top OG(original gangster). We’ll find out soon whether they can actually work together rather than compete for the spotlight . without further Ado let’s get into it.

THE HISTORY.

The question can DeFi and CeFi co-exist is not a question of “if” but a question of “when” and “how”

But first it is important to know which role each of these financial sectors  play, what they solve and what remains a problem unsolved which has created an opportunity for the other to exploit. 

CeFi has been around for most of the time as long as human history with money and currency. But in this very context we are talking about the blockchain based industry standard of CeFi.

Centralized finance (CeFi) is defined as a financial ecosystem where centralized authorities control financial assets and the flow of money. They set the rules and standards for how assets are managed and transacted. 

The main concept of centralized finance is all about the financial structure based on a central authority by which users are accepted and verified. In this case we can say no user has full control over the assets they own on a centralized exchange. In crypto a perfect example of CeFi are centralized Exchanges. They operate as traditional finance of the blockchain or crypto industry. Examples are Binance, Coinbse, Bybit etc.

DeFi have been around for a while too but without advanced  engineering and marketing, they’ve remained under the rug as just an idea that was birthed with bitcoin. Yes DeFi has been around as far back as 2009 and by default it is the only perfect rendition of the purpose why crypto was initiated into the finance sector after the 2008 crisis. DeFi was developed to create a financial system that is open to everyone and minimizes the need to trust and rely on a central authority. It’s argued that DeFi started in 2009 with the launch of Bitcoin. Seeing how well centralized exchanges have been fairing even though they did not serve the full purpose of crypto, which is decentralization, they did help users to easily move funds from their traditional banks into their Centralized exchange  accounts.  

With the rising crash of more exchanges and further lack of trust in the management, attention once again has begin to turn to DeFi exchanges for security of funds and even more recently this year we have seen more DeFi exchanges that even do things that were only possible on centralized exchanges, some of  which are trading input options, leveraged trading  and many more. This has created a more heated existential threat to  centralized exchanges and CeFi generally. 

THE BRIDGE: why are they different?

If crypto will need to get better especially with so many pending crack downs and regulatory scrutiny then it will be wise for the two most rivaled sectors CeFi and DeFi to become united and leverage the strength of one another to strengthen areas of each other’s weaknesses. 

> CeFi has a first advantage due to its friendly user interface which is always well designed and easy to use. 

> By default DeFi is complex to understand for users. So to solve this problem Defi has to upgrade it’s interface to become something like that of CeFi. Before I can give an answer to this, I want you to understand that DeFi is for power users compared to the regular stuff done on centralized platforms. This is why it is complex. It’s not because they lack skilled developers that can match CeFi interface but simply because Defi is very complicated such that you can’t put that powerhouse on a simple interface like we see on centralized exchanges. 

It is now important to know that the DeFi experience is changing, that we can now see features like we have on CeFi, for example perpetual dex, lending/borrowing  and many more still to come. 

Now why they are different is obvious; CeFi is easy to use but has central authority over user funds and activities. Also you are subject to compulsory KYC while CeFi is totally decentralized and gives users full custody over their funds through a decentralized wallet but DeFi is difficult to use. 

Can CEFI and DEFI co-exit?

Yes they can and they have actually been doing so before now. What really matters are the users and the purpose for using a crypto platform. If CeFi had all the functions of DeFi then it wouldn’t be CeFi anymore and if DeFi operated exactly like CeFi then it wouldn’t be decentralized anymore. But I have to admit that CeFi is easy to set up and use even if you are coming from TradFi(traditional finance). All you have to do is open an account and connect it to your bank. Unlike DeFi where you have to use a digital wallet and then connect to dApps to interact with dexes where you can swap crypto. It’s just too cumbersome for a regular person. DeFi is not there yet but i can tell you it has more updates coming to it to make it look as easy to use as possible. The more you use the better you get. 

If you need more knowledge on both CeFi and DeFi then check out Crypto university’s Web3 Masterclass and Investing Mastery Course, charges may apply. 

Conclusion

The crypto space is growing and it is only a matter of time before we see more from DeFi in the long run as it has more potential to dominate but I believe even more upcoming updates will allow CeFi and DeFi to interact together where necessary or not. Time will tell. If you have been used to CeFi for long it is high time you start learning how to use DeFi despite the complexity that surrounds it. Trust me you will only get better.