The Finance Platform has undergone a rapid revolution, with blockchain and cryptocurrencies being the major factors. Blockchain finance can be done by utilizing a central authority or without a central authority, known as Centralized Finance (CeFi) and Decentralized Finance (DeFi) respectively. Both these finance systems offer numerous advantages and limitations, how about combining the two platforms and integrating their benefits into a single platform? Yes, that thinking made the CeDeFi platform a reality.
This article features CeDeFi, its working principles, and their importance in crypto platforms.
Table of Content
- What is CeDeFi?
- Why CeDeFi Platforms Introduced?
- Advantages of CeDeFi.
- How Does CeDeFi Work?
- Limitations of CeDeFi.
What is CeDeFi?
CeDeFi, Centralized Decentralized Finance is an innovative financial system that combines the best features of centralized and decentralized financial systems (CeFi and DeFi). It offers services like lending, yield farming, and staking similar to decentralized platforms along with ensuring security and stability just like centralized finance.
The platform uses blockchain technology and smart contracts of a decentralized finance system without going out of context of the regulatory frameworks and complying with centralized finance.
Why CeDeFi Platforms Introduced?
By utilizing the decentralized nature of blockchain technology, Decentralized Finance (DeFi) platforms allow peer-to-peer transactions without the involvement of a third party. By incorporating smart contracts, the platform automates transactions, eliminating the need for human involvement. This reduces the transaction cost and increases the efficiency of transactions. The platform allows everyone to view the transactions and get informed of any changes happening in the system. However many scams and hacks are reported on the platform questioning the security of transactions.
On the other hand, centralized finance (CeFi) platforms are monitored by a central authority offering structured control over the platform, reducing the chance of hacks and scams. Though the platform offers security, it lacks transparency and charges a high cost for transactions.
The challenges faced by the two platforms and the benefits offered made the developers think of an innovative solution that could solve the issues of both platforms and adopt the advantages of both. This led to the development of the CeDeFi platform, the combination of CeFi and DeFi.
Advantages of CeDeFi
By combining both the effective features of CeFi and DeFi, the CeDeFi platform offers numerous benefits for the users.
1. Authorized Service
The CeDeFi platform approves a product or service after conducting a proper test. All products launched on the platform are verified and authenticated, preventing scams and other vulnerabilities.
2. Regulatory Compliance
By adopting the regulatory compliance feature of CeFi platforms, CeDeFi platforms integrate KYC (Know Your Customer), KYT (Know Your Transactions), and AML (Anti Money Laundering) regulations in the platform protecting the user from fraud and theft.
3. Lower Transaction Cost
The CeDeFi platform consolidates the control and management of the transactions within a small group. This reduces the large number of intermediaries and thus reduces the cost of transactions.
4. Faster Transactions
By utilizing smart contracts and reducing the involvement of third parties, the CeDeFi platform conducts faster transactions.
How Does CeDeFi Work?
The CeDeFi platform encompasses products and services in compliance with a structured financial system and regulation using blockchain technology. In simpler words, the CeDeFi platform utilizes decentralized blockchain technology to provide smart contract assistance and integrates the benefits of a central authority to monitor the transactions.
The platform is not fully decentralized or fully centralized, it is a combination of centralized and decentralized platforms. Though utilizing an authority to control and monitor the working of the platform prevents the complete control of users over their assets, it helps to make the network more consolidated. When a central authority monitors the transactions the chances of scams and hacks become less and if any such cases happen, one gets government support.
By adopting the features of a decentralized network, the platform automates the transactions using a smart contract which processes the transaction when predetermined conditions are met without relying on humans. This reduces the transaction cost and increases the transaction speed.
Limitations of CeDeFi
Though CeDeFi offers numerous benefits, the platform also incorporates some challenges.
1. Familiarity With Crypto
To effectively utilize the CeDeFi platforms users must have familiarity with crypto. The steep learning curve of the platform necessitates the need for crypto basics for using the platform’s service.
2. Not Fully Decentralized
The platform is not fully decentralized, meaning an authority controls and monitors the platform. This prevents the users from gaining the full control over their assets.
3. Innovative Project
CeDeFi is an innovative project. Being an unproven system the scope of the platform is not completely known yet. However, in the future, the platform may conquer heights.
Final Thoughts
CeDeFi is a perfect blend of decentralized and centralized financial systems. Offering regulatory compliance for transactions, smart contract assistance, cost-effective and efficient transactions, and adding value to the products of the platform.
However, being a new and innovative platform, it may have shortcomings like the need for crypto knowledge for accessing the products and loss of full control over assets, etc. By overcoming the existing challenges, the platform tends to evolve in the future.