What Is CeDeFi And Why It’s Complementary To Traditional Finance

The financial world is rapidly changing, with significantly emerging data security issues, and increased transaction costs impacting the margins. One more perceived threat is from the crypto world. Although Crypto is a small application of Blockchain technology, there is growing resistance to blockchain from traditional finance, mainly due to the decentralized nature of Blockchain, and its byproduct Defi - Decentralised finance.

With significant use cases of DeFi in traditional finance, adaptability is still under confusion. Far from all misconceptions, blockchain is an enabler not a disruptor of the traditional finance industry. It will only improve the efficiency in which traditional finance operates.

Read More: Everything You Need to Know About DeFi Ecosystem

In this article, we'll discuss new technology, CeDeFi, why this technology is complementary to the traditional finance system, and how it will bring together the best of traditional centralized finance and decentralized finance.?

Why is DeFi Considered A Threat By Traditional Finance

Traditional finance is a centralized way to transfer, maintain and process all finance-related activities. If global indicators are true, traditional finance is not open to the idea of decentralization and autonomous organization. They would like to have checks and balances in place and a leadership team governing and managing decisions. While traditional financial institutions can still decide to be centralized and operate, they will find themselves in a tough spot in the near time, to fight the change and compete with new startups challenging their market position.

Read More: DeFi Development Company

If we keep the crypto story outside and just look at blockchain as a technology, the benefits are immense for traditional financial institutions. The centralized operating model only slows down the business, impacting the bottom line and margins. For efficiency's sake, we need this technology.?

Decentralized Finance systems operate every process that a traditional finance system covers, with a great amount of decentralization, transparency, and full accessibility to the participants. There's no central authority, organization, or institutional system controlling any financial activities; participants are the user and keepers of the systems. Admins only have access to the application and website, the rest of the operations are largely automated.?

Traditional finance mediums require very strict governance, surveillance, and confidentiality. DeFi can impact the traditional finance system if implemented without understanding the risks. While governments are getting softer on decentralized finance mediums, still they're confused about the impact of DeFi on traditional finance. It's visible that DeFi has a future, but not with conventional finance systems. Hence, a need for customized DeFi was needed, and here comes CeDeFi with outstanding features combining both financial systems.

What Is CeDeFi And Why It's Complementary To Traditional Finance

CeDeFi, alias Centralized Decentralized Finance, is among the best blockchain innovations by far. The term clearly explains the motive behind this new blockchain realm, which is to combine elements of centralization dear to traditional finance and leverage the benefits of blockchain to improve the governance and efficiency of the organization.?

CeDeFi offers authority custodians over decentralized systems. With CeDeFi, organizations can expand their business with blockchain without any fear of losing control over their inner dynamics. Moreover, organizations get the best of both traditional finance systems and the limitlessness of the Defi application. DeFi products like liquidity aggregators, DeFi smart lending protocols, yield farming tools, and techniques, in exchange for a minimal transactional fee. Above all blockchain's capability to help in creating a backbone governance model for traditional business will help in auditing systems and processes. Improve traceability, data security, and interoperability between systems. The encrypted immutable nature of blockchain can prevent fraud and cyber attacks on the systems.?

As an example, CeDeFi lets institutions operate with less transactional fees, better KYC support, end-to-end security, and myriads of use cases built into blockchain smart contracts.?

For possessing these features, CeDeFi is quite complementary to traditional finance systems. Traditional finance needs process efficiency, improved data security, and governance of the entire value chain. CeDeFi, from all perspectives, fulfills every requirement of traditional finance. So, the claim is affirmative.?

Example Use cases:

Customer Identity

Traditional finance uses KYC, the Know Your Customer process, to verify a genuine customer and their authentication details. This adds substantial data security challenges.?

CeDeFi uses KYT, the Know Your Transaction mechanism, to avoid discrepancies related to customer data safety. This mechanism uses a compliance analysis system rather than storing their identity as an address. In this way, CeDeFi's KYT system is better than traditional KYC, and that's how CeDeFi keeps decentralization and centralization all together.??

Exchanges

Stock and MF exchanges hold a major part of the traditional finance sector. Exchanges dealing with stocks, options, and current equivalents can't afford any minute vulnerability, for the whole country's ecosystem can get devastated by those matters. So, the terms like full transparency, distributed access over data, and decentralization doesn't suit traditional finance.?

CeDeFi exchanges can build great efficiency over the traditional stock trading and investing systems, with low transaction fees, fewer settlement days, and automated Smart Contract procession. Government-approved stock exchanges can have full control over customer data, providing blockchain-based full-proof security over customer data.?

Insurance

The insurance industry can greatly take CeDeFi features to run efficient insurance systems. Smart contracts and Machine Learning based insurance underwriting and claim calculation systems can increase insured and insurer relationship and trustworthiness. Overclaiming cases will sink, as the CeDeFi-based insurance claim calculation and settlement process will hardly make any mistakes in calculating the real value.?

These are the major use cases of CeDeFi systems. CeDeFi has many other use cases, but these three sectors hold a big portion of traditional finance which requires new age protocols without losing confidentiality and integrity factors.?

Conclusion

As the benefits of CeDefi become known, we will see governments and financial institutions leveraging the benefits of DeFi, while moving from centralized-heavy to lean-centralized business operations. Financial institutions will be more efficient, productive, and lean with CeDeFi.?

SoluLab is working with leading financial institutions to transition their business to blockchain based governance. Contact us to know more.