The continuous evolution of the crypto economy is conducive to new concepts and initiatives, such as the term CeDeFi, coined by Changpeng Zhao (CZ) in September 2020 to describe the sum of CeFi and DeFi.
A Quick Guide to CeDeFi. CeDeFi was born to bridge centralized finance with the decentralized world and make it easier for millions of people to enter the DeFi ecosystem while maintaining the security and oversight of centralized platforms. Because of this degree of control over the protocols, centralized, decentralized finance makes no sense to many people in the crypto community.
What is CeDeFi?
In September last year, Binance’s CEO announced the creation of a $100 million seed fund to develop new solutions that would bring the DeFi and CeFi ecosystems together in one place. With this initiative, CZ wanted to show that centralized and decentralized finance can complement each other.
Since the birth of the crypto economy, regulators have expressed constant concern about cryptocurrencies. Especially for decentralized ecosystems, as DeFi lacks KYC and AML controls, a reality that CeDeFi can help transform to drive mass crypto adoption. This move allows for the trading and exchange of different tokens. CeDeFi includes those tokens from decentralized protocols but under the oversight of a centralized platform. While the idea has had significant momentum in the last year, it has also gained many detractors, especially those advocating privacy.
Benefits and risks
CeDeFi can greatly benefit in case of security vulnerabilities or exploits in the DeFi ecosystem. As we well know, fraudsters vaporized hundreds of millions of dollars due to vulnerabilities exploited in decentralized protocols. And these are not always recovered. So, by maintaining a degree of centralization in CeDeFi, it is possible to track funds in case of losses and hacks.
CeDeFi offers regulatory advantages, as complying with KYC and AML requirements offers greater confidence. It allows the entry of more people, including institutional participants. Also, by combining CeFi’s expertise, DeFi can grow much more. Currently, the size of the decentralized financial ecosystem, measured as Total Deposited value (TLV), reached an all-time high of $200 million.
On the other hand, one of CeDeFi’s main barriers is privacy. Decentralized protocols were born to give control and power back to users, who can manage their finances without intermediaries. However, through CeDeFi, this control is once again ceded, leaving important decisions in the hands of third parties.
Main platforms
Binance Smart Chain (BSC)
The Binance blockchain, known as Binance Smart Chain (BSC), is a solution developed to support decentralized applications (DApps) and smart contracts, the main ingredients of decentralized finance.
Binance Smart Chain is a dual-chain architecture that allows developers to build DApps and mint digital assets efficiently. This blockchain was born to compete with Ethereum, and many of Ethereum’s successful projects are available on the BSC. This blockchain is home to several DeFi projects that enjoy the benefits of the DeFi and CeFi ecosystems in one place.
Unizen
Unizen defines itself as a Smart CeDeFi ecosystem. Running on the BSC, this project is the first CeDeFi exchange to combine CEX and DEX functionality. Unizen brings Binance Cloud, Uniswap, and SifChain to its ecosystem. They want to guarantee the needs of retail and institutional traders by ensuring liquidity and high regulatory compliance.
As an exchange, Unizen offers higher profitability in trading and minimizes risks. It also provides high performance and a secure environment for high-volume trading.
TrueFi
TrueFi is a platform that combines elements of DeFi and CeFi. Users can obtain a credit rating on it to borrow money. An unsecured lending protocol built on Ethereum acts as a bridge between centralized and decentralized finance.
On TrueFi, TRU token holders can vote to whitelist a borrower on the protocol and approve or disapprove their loan. Protocol members act as an executive authority in charge of the KYC registration of borrowers and other elements within the protocol, including the governance functions that TRU holders will have.
DeFi Swap
The DeFi Swap platform, developed by exchange Crypto.com, was born as a fork of the open-source DEX Uniswap. Crypto.com explains that DeFi Swap is a tool for exchanging DeFi tokens and yield farming incentives, where specific restrictions apply. For example, although it is a copy of the industry’s largest decentralized exchange, DeFi Swap is unavailable for particular geographic locations, such as the United States and China.
According to Kris Marszalek, CEO of Crypto.com, geographic restrictions are in place to ensure compliance. Crypto.com reserves the creation of pairs and token choices as a security measure for participants.
Through DeFi Swap, Crypto.com seeks to position itself in the DeFi sector, following in the footsteps of Binance. This platform allows users to swap assets and become liquidity providers with CRO, the platform’s native token, to earn rewards.
Nexus
Nexus is a centralized institutional-grade trading platform integrating DeFi elements into its services. The platform announced the creation of Nexus Vaults, liquidity vaults where loans can be managed and earn interest using fiat or cryptocurrencies. Through Nexus Vaults, the platform offers access to DeFi and CeFi to both retail and institutional investors. Those interested in accessing the platform’s liquidity or earning rewards must complete a KYC registration.
Bybit and OKEx
Bybit, the industry’s eleventh-largest exchange by trading volume, wants to provide DeFi-inspired products and services. This exchange offers a Bybit Learn platform where users can access decentralized products such as yield farming. Bybit’s idea is to build a complete CeDeFi ecosystem that brings new experiences to its users.
OKEx, another major exchange in the industry, launched this year DeFi Hub, a platform to explore decentralized finance.
Binance
Binance has leveraged its position as a global leader in the crypto industry to drive the CeDeFi movement. In December 2020, the exchange had more than 100 million users worldwide. Its current trading volume exceeds $24 billion per day, according to CoinMarketCap data. This daily trading volume is 600% more than Coinbase, the industry’s second-largest cryptocurrency exchange.