Howdy DailyCoiners,

Today we're going to take a few minutes to explain one of the most common questions we get.What's the difference between DeFi and CeFi?

So please sit back, grab a coffee, and let's learn together:

• DeFi: the Future of Finance or Fanciful Fad?

• Is Centralized Finance (CeFi) the Better Option?

• Defi vs. CeFi: Rivals or Roommates?

The Future of Finance

Decentralized finance (DeFi) is an umbrella term used to describe a network of peer-to-peer financial services that uses blockchain technology and eliminates the need for greedy, fatcat middlemen. 

In the same way that you make use of your traditional bank to manage your money, buy insurance, or trade assets, DeFi platforms allow you to do the same.

DeFi aims to democratize access to these services for everyone and is non-custodial; users are always in complete control of their assets.

The core principle of DeFi is that it is designed to be global and open to everyone; whether you are in New York or New Guinea, everyone can use DeFi services. Which is especially useful for the millions of unbanked people around the world.

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Does CeFi Bridge the Gap?

Centralized finance (CeFi), in contrast to DeFi, is custodial; a centralized entity has control of your assets. 

CeFi represents financial services for crypto, such as:

• Centralized Exchanges (CEXs)

• Lending and Borrowing

• Earning Yield

Companies like Coinbase, Nexo, and Swissborg provide crypto-related services; they are regulated by government agencies and enforce Know your Customer (KYC) and Anti-Money Laundering (AML) regulations.

What CeFi companies lack in decentralization, they make up for in customer service and a sense of security.

Two Sides of the Same Coin!

CeFi and DeFi both have their advantages, and both have a place in the crypto world. It’s not so much a battle between them, more that they are providing similar services for customers with different needs.

Advantages of DeFi

• DeFi is non-custodial. You are in complete control of your assets or as the common phrase goes, “Your keys, your coins.”

• There are no forms to fill in or ID to show. Just pick up your phone or open your laptop and you’re done; DeFi removes people from slowing things down!

• You don’t need to share personal information. Identity fraud…bye bye!!

• DeFi is more transparent. While you don’t have to give personal information, anyone can view transactions made on the blockchain. CeFi platforms are less likely to show you everything they do with your stash! (Cough…FTX).

Disadvantages of DeFi

• Security and stability. If the DeFi product is poorly built and has bugs or vulnerabilities. Over the last two years (2021-2022), over $7 billion was stolen in DeFi Hacks.

• You are responsible for everything. Removing the middlemen puts the onus on you to keep your assets secure, Work out your own taxes, and spot potential security issues.

• Insurance is rare. While CeFi organizations are often insured against something happening to your assets, insurance in DeFi is much less common.

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