Key points to remember:
- In Centralized Finance (CeFi), users must entrust custody of their funds to a trusted organization such as a bank or centralized cryptocurrency exchange
- Decentralized finance (DeFi) eliminates the need for intermediaries in financial transactions because in DeFi, transactions rely solely on technological solutions such as self-executing smart contracts running on a public blockchain.
- The soon-to-be-created CeDeFi Alliance aims to combine the best of both worlds by bringing together DeFi projects and CeFi institutions
- The nonprofit that champions CeDeFi services will emphasize their regulatory compliance
Centralized finance (CeFi) is the legacy financial system
Let’s face it, centralized finance (CeFi) is the legacy finance architecture. The main characteristic of CeFi services is that they are managed by centralized entities, such as banks, hedge funds, companies, etc. Even though most blockchains are decentralized, many centralized companies operating in the cryptocurrency space fall into the CeFi category – think centralized exchanges (CEX), centralized lending service providers (BlockFi, Nexo) and a slew of other companies offering CeFi services to the crypto-savvy public.
Although CeFi solutions often offer higher liquidity, better user interface and more flexibility (e.g. cross-chain swapping options), they come with a big trade-off. Users of CeFi services must entrust their funds to the company offering the services, which exposes them to the risk of losing their funds if the organization that has custody of the funds goes bankrupt, gets hacked or even abuses the funds and acts against customers. best interest.
Decentralized finance (DeFi) has replaced “trust in people” with “trust in technology”
While the development of blockchains gave us the ability to process digital assets without a trusted intermediary, it was smart contracts that enabled these digital public ledgers to be used for more complex transfers of value, such as those in commerce, loan, borrowing or even insurance contracts. Self-executing smart contracts have thus removed the need for a centralized institution to act as an intermediary in these transactions.
“Trust in people” (also trust in organizations) has been replaced by “trust in technology”, which is the biggest pro of decentralized finance (DeFi), because its users do not need relinquish custody of their funds at any time. Moreover, the DeFi sector is a place of very fast innovation. On the other hand, DeFi products are generally unregulated and the possibility of having your funds stolen through exploited smart contract vulnerabilities is also a legitimate concern that should not be mentioned.
While the term DeFi was coined in 2018, the first platform with the characteristics of a DeFi product, MakerDAO, was already established in 2017. The popularity of DeFi has grown significantly throughout 2020 and into 2021, DeFi has become a serious competitor to CeFi solutions. According to DeFi Llama, nearly $190 billion worth of digital assets are locked in various DeFi protocols today. Also, many industry insiders believe that DeFi will steal a lot of market share from CeFi in the coming years.
Centralized Decentralized Finance (CeDeFi) combines the best of both worlds
Centralized Decentralized Finance is an innovative financial system that aims to merge the best features of CeFi and DeFi. The ideal CeDeFi product therefore has the liquidity and ease of use of CeFi, while benefiting from the security of DeFi which minimizes the trust that must be placed in the centralized entity by removing the need for asset custody. CeDeFi’s goal is to make crypto assets accessible at scale and drive large-scale blockchain adoption through close collaboration between DeFi projects and CeFi institutions.
Unizen will create CeDeFi Alliance, a crypto not-for-profit that will accelerate the development and adoption of CeDeFi
Unizen, a fully compliant cryptocurrency exchange that combines the functionality of CEX and DEX to meet the needs of retail and institutional traders, has announced that it will create CeDeFi Alliance – a non-profit organization that will seek to unite decentralized teams and centralized decision-makers. Unizen representatives hope that the two usually opposing parties will meet in the Alliance to discuss proactive cooperation.
In addition to building a partnership network, the Alliance will also lobby for CeDeFi’s interests with key industry stakeholders to provide its members with unique institutional and governmental opportunities. However, for CeDeFi solutions to be used in these environments, the financial products must be regulated and fully compliant with local laws and regulations, which is why discussions with market regulators will be high on the to-do list of the lender. ‘Alliance.
While the Alliance will primarily focus on financial solutions, the team will also be looking for innovative use cases of the centralized-decentralized approach in other industries. The press release notes:
“Blockchain and digital assets have the potential to disrupt multiple domains if centralized and decentralized players can find common ground for such partnerships.”
Jun Capital helps Unizen finance the CeDeFi Alliance
Unizen also revealed that it has secured funding for the new CeDeFi alliance from a leading crypto technology investment firm, Jun Capital, which will also become a key member of the newly founded organization. However, the Alliance is not the first joint venture of these two organizations. Jun Capital and Unizen have already established themselves as the drivers of the CeDeFi ecosystem by creating the first CeDeFi incubator – the ZenX incubator.
While the ZenX incubator helps teams in the development, promotion and deployment of their CeDeFi projects from a technical and practical point of view, the CeDeFi Alliance will help incubated projects in terms of respecting theoretical and regulatory frameworks. In conclusion, if the CeDeFi Alliance were to reach its full potential, we could soon witness a rapid growth in the number of deployed CeDeFi solutions and their users.
David is a crypto enthusiast and personal finance expert. He has created numerous publications for different platforms. He loves exploring new things, and that’s how he discovered blockchain in the first place.
