1.1. CeFi vs DeFi vs CeDeFi
The traditional financial service industry (referred to as “TradFi”) is vital to the global economy, but only provides services in an extremely regulated manner and typically at a high cost to the individual user.
Despite recent developments in financial technologies, the strict regulatory requirements embedded in TradFi have made it difficult to innovate and create the kinds of products that truly benefit customers. This has created a scenario for new technologies, such as blockchain, to emerge.
Financial Services in the blockchain industry is being increasingly viewed as another solution for customers wanting to participate in the act of investing, but with greater flexibility. There are two main variants of financial services in the blockchain space: Centralized Finance (CeFi) and Decentralized Finance (DeFi). Both CeFi and DeFi consist of platforms harnessing various financial instruments (eg. saving, lending, borrowing, staking). However, they differ in the way in which they provide these services and products. There are pros and cons to each - neither is perfect.
DeFi typically offers a very high return on investment, which is provided in a permissionless and trustless way. Being able to access financial products on public decentralized blockchain networks has significant appeal to consumers, as they do not need to undertake KYC or identity verification or supply their personal information to a corporate entity. However, there is a knowledge barrier involved in Using DeFi as well as risks associated with faulty code, exploits, or simple user error. Well-known DeFi platforms include MakerDAO, Aave and Sushiswap.
CeFi attempts to offer some of the yield benefits of DeFi alongside the ease of use and security that TradFi offers, however, this comes at the expense of not always having custody of your own funds (they are trusted to the centralized platform/exchange). Well-known CeFi platforms include BlockFi, Celsius, and Coinbase.
CeDeFi: A better approach
In late 2020 the CEO of Binance, Changpeng "CZ” Zhao, coined the term Centralized Decentralized Finance (CeDeFi) when he launched the Binance Smart Chain. On Binance, users can stake BNB to earn farmed tokens for other upcoming projects. This allows users to earn the high yields attributed to DeFi on a centralized platform, without the need to interact directly with DeFi protocols.
CeDeFi appears to solve the problems that face both CeFi and DeFi and as a result, it has started to gain significant momentum as a financial instrument. Ultimately, CeDeFi promises a way of enabling cryptocurrency enthusiasts to operate in a simple way on secure investment platforms and exchanges, providing them access to handpicked and vetted projects with high liquidity and high levels of security.
This is where Moonfarm comes in. As one of the only true CeDeFi protocols on Binance Smart Chain, we are here to bridge the gap between CeFi and DeFi for all of our users.