DeFi vs CeFi
CeFi is centralized finance, which is the traditional way of doing things.
In CeFi we solve problems such as liquidity and matchmaking by entrusting them to a central authority, such as a bank or a cryptocurrency exchange.
In DeFi, these responsibilities are split up among different dApps.The benefits of DeFi
The advantages of spitting the system up this way include:
- Security. By splitting everything up, the system loses many of its weak points and gets many redundancies.
- Competitiveness. Because anyone can build dApps to integrate with other dApps and anyone can access this system, the market for providing financial services becomes very lean, competitive, innovative and consumer-friendly.
- Virtuous cycles. The interdependence between dApps means they can keep driving value to each other and growing rapidly.
- Novel applications. There are many things you can do with blockchain and DeFi that simply can't be done with CeFi.
- Cost-effectiveness. Because dApps can offer services autonomously, they can also offer them at much lower cost than their centralized equivalents can.
The overwhelming nature of these advantages means much of the global financial system will move from CeFi to DeFi in the coming years.