DEFI VS CEFI

DEFI (Decentralized Finance)

DEFI is a super interesting and vibrant space which is full of opportunities. Decentralized finance is an experimental form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks, and instead utilizes smart contracts on blockchains, the most common being Ethereum. DEFI is trying to create a whole new finance ecosystem Lending and Borrowing is only part of this vast eco system some of the other parts are Stable coins, Decentralized exchanges, Insurance Derivative, Margin trading.

DEFI (Decentralized Finance)

Build on Blockchain

Permission less (No KYC)

Open (Open source encouraging free colorations)

Censorship-Resistant (

Cheaper (Mostly network fees)

CEFI (Centralized Finance)

CEFI is a middle ground of sorts, offering centralized platforms that bridge the legacy finance platforms with the new digital asset economy, by providing financial services to digital asset and often fiat currency users.

CEFI

Build on Old foundations

Permissioned (KYC Sanctions)

Closed (Closed source decision made behind closed doors)

Can be Censored

Expensive (Intermediaries charging hefty fees)

How DEFI works

MAKERDAO & COMPOUND

MakerDAO and Compound are two emerging cryptonative services that have the potential to become a key infrastructure for the open financial system. MakerDAO system provides a collateralized cryptocurrency, or a “stable coin”, DAI. Compound is a protocol for algorithmic and efficient money markets. A community of MKR token holders govern the Maker Protocol, the smart contracts that power Dai. Dai is a stable, decentralized currency that does not discriminate. Any individual or business can realize the advantages of digital money. Over 400 apps and services have integrated Dai, including wallets, DEFI platforms, games and more. $630 Million Locked in the Compound Protocol

Potential Risks associated with DEFI

Bugs (protocol changes that can affect the existing contracts) this can be rectify if the users take additional insurance to lower the risk of potential issues.

Network Fees & Congestion upcoming ETH 2,0 and second layer scaling solution will help with this

DEFI is exciting and vibrant it is the closets thing to disrupt the traditional finance system. DEFI is super interesting but it still very new it is High-Risk and High Reward its built on the new rails of blockchain technology.