CeFi or Centralized Finance refers to traditional financial institutions and platforms that operate within a centralized structure, regulated by governments or financial authorities.
The acronym CeFi stands for "centralized finance" and refers to traditional financial institutions and platforms that operate within a centralized structure. This means that they are controlled by a single entity, such as a bank or a financial company, and often require customers to go through a verification process (called Know Your Customer or KYC) to use their services.
One of the main features of CeFi is that it is regulated by governments and financial authorities, which means that it is subject to specific rules and regulations. This can give customers a sense of security, as protections are often in place to ensure that their transactions are legitimate.
One example of a CeFi platform is a centralized exchange, or CEX, that allows users to buy and sell cryptocurrencies and other digital assets. In addition, they often have a wide range of trading pairs and may offer additional services such as margin trading or lending.
Centralized platforms are more stable and secure because the risk of fraud or theft is lower and more resilient to malicious operations. However, they are more susceptible to corruption and manipulation by the people in charge. Third-party companies often monitor them to verify that there are no suspicious transactions. They usually have insurance policies that can cover the damages of a hack - but they may only protect some of the capital of all investors.