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What is the difference between DeFi and CeFi ?
What do we mean when we talk about DeFi ?
This acronym stands for Decentralized Finance.
The principle of Decentralized Finance is to allow everyone to invest (their crypto-currencies) without going through a central body, such as a bank, a hedge fund, or any system managed by a third party. You reduce the risk of theft, bankruptcy, falsification, or management problems that you have not committed yourself. In addition you retain your anonymity as you are not subject to any KYC (Know Your Customer) to invest your cryptocurrencies.
What are the characteristics of DeFi ?
- The DEX for Decentralized Exchange
- Transparent and Anonymous
- Capacity for innovation
- No barrier to entry
What do we mean when we talk about CeFi ?
CeFi or Centralized Finance, and the equivalent of a cryptocurrency bank . One could rightly imagine that this concept goes against the very creation of Bitcoin and crytpom currencies, however BeCeFi has the advantage of allowing people wishing to enter this new economy to benefit from logistical and technical support with higher interest.
Centralized finance is therefore the creation of cryptocurrency banks that allow individuals to borrow (fiat or crypto) or lend money (cryptocurrencies) in exchange for interest. The bank acts as an intermediary between the two parties and takes a percentage in return. It is easy to imagine that their field of competence will expand in the next few years in order to take over from traditional banks or to fill their gaps.
What are the characteristics of BeCeFi ?
- CEX for Centralized Exchange
- Cross-chain services (Unlike DeFi which only operates on a blockchain)
- Easy fiat/crypto exchange
- Delegation of its assets
DeFi actors in the world
You probably know the DAI. It is an ERC-20 stablecoin (developed from the Ethereum plockchain) backed by the US Dollar. Developed by Maker this cryptocurrency is decentralized unlike Tether with its $USDT or the $USDC of Coinbase. The advantage of Maker is that the community votes on the rules. To do this, you must have your $MKR token.
Compound like Aave offers a system of tokens indexed on the real value of the cryptocurrency you delegate. cTokens are ERC-20 compliant and work like other assets. Each market has its own procurement interest rate (PIR). Interest is not distributed; instead, simply by holding cTokens, you will earn interest. cTokens earn interest through their exchange rate – over time, each cToken becomes convertible into an increasing amount of its underlying asset, even if the number of cTokens in your portfolio remains the same.
Monolith has the particularity of combining both the aspects of DeFi as well as a credit card on the same platform. With this type of application each person is able to be his own bank. To make a rather simplistic parallel, Monolith is the DeFi equivalent of Crypto.com. Note that if you want a VISA card, you will still have to fill in a KYC.
Aave works in a similar way to Compound. Available on some wallets like Argent or Trust Wallet. The principle is quite simple. You convert your tokens in parity 1:1 against aTokens (example 1 BAT = 1 aBAT), those if are created at the time of the “sale” and destroyed at the time of the redemption. Your BAT tokens remain in your wallet, while the aTokens are exchanged and earn interest.
BeCeFi’s fashionable companies
Celsius Network is an iOS / Android cryptocurrency lending application. Specifically you deposit your cryptos into your account and Celsius will use them to allow other users or institutions to borrow them against fiat money by pawning cryptocurrencies on their side. For this you get paid interest rates ranging from 2 to 3% up to 12% on stablecoins like the$USDT.
With nearly 130,000 active accounts on its platform, a new round of funding in which Tether invested $10M, Celsius Network is on its way to becoming a staple in cryptocurrency lending.
On the same principle as Celsius, Nexo is a cryptocurrency lending company. It is possible to borrow or lend Bitcoin, Litecoin, Ripple, stablecoins but also euros with an annual rate of 10%. Nexo also offers a credit card and cashback with the use of its card.
Nexo was in turmoil in March during the stock market crash that plunged Bitcoin and cryptocurrencies. Some customers have had their Bitcoins liquidated in order to keep the platform afloat.
It’s hard to miss them as they are so present on the internet and social networks. With its ultra-aggressive marketing campaigns and promotional offers Crypto.com is one of the best known players in the CeFi industry. Everything is present: an exchange, an application to buy cryptos, a credit card, cashback etc.
However, be careful to measure the risks. With its recent setbacks with Wirecard (payment solution for its credit cards), and its very (too) attractive campaigns, Crypto.com has not yet revealed its true nature nor erased its youthful mistakes.
BlockFi is another lending solution. A major player in the United States, BlockFi allows its users to earn between 8 and 9% annually by lending their cryptocurrencies. It is now possible to trade in a number of cryptocurrencies through the platform.
The Libra project developed by Facebook should certainly fit into a CeFi logic with its wallet Novi (formerly Calibra), it is moreover the latter which raises so many questions to the institutions and the DeFi sector.
To know the barometer of DeFi’s cryptocurrencies : Top 100 cryptocurrencies of DeFi by Market Cap