Hybrid Finance in crypto
Updated: Dec 5, 2022
A Google search found about 104K results with the words “CeDeFi”. This article wants to introduce a hybrid finance definition and example underlying the importance of CeFi and DeFi concepts for Yanda, one of the first HyFi protocols (Hybrid Finance) leveraging CEX infrastructure to bridge both centralized and decentralized finance aiming to enhance the transparency of off-chain transactions.
What does Hybrid Finance mean in the blockchain industry?
Hybrid Finance (HyFi) combines different elements and aspects of two financial systems, centralized finance and decentralized finance, facilitating both characteristics. It will soon become the primary choice for fintech businesses worldwide.
Meaning of CeDeFi
The term CeDeFi is an acronym for “CEntralized and DEcentralized FInance”, and it’s another way to indicate hybrid finance in the crypto industry. It was initially coined by the CEO of Binance, Changpeng Zhao, or simply CZ when Binance launched its Binance Smart Chain (BSC) in 2020.
This abbreviation refers to protocols EVM compatible that offer the benefits of DeFi (with a market cap of $59B in the first half of August 2022) and the security of the centralized systems. In a few words, CeDeFi merges the best advantages of DeFi (Decentralized Finance) and CeFi (Centralized Finance).
As we explained in the previous article about centralized exchanges (CEXs), the CeFi system suffers from many problems, e.g. access to everyone, efficiency in terms of time and cost, and many others. DeFi was born to solve these problems, but it has created a new set of problems, including:
No KYC, AML, and CFT checks;
No consumer protection;
Unpredictable fees and higher transaction costs;
High slippage risks;
Unregulated grey areas;
Unreliability of on-chain algorithms.
Broadening horizons with a vision of innovation, Hybrid Finance always tries to bring onto the market new products and projects of blockchain and fintech. For this reason, CeDeFi or HyFi protocols and applications should have at least these primary features like
full support for KYC, AML, and CFT;
strong consumer protection mechanism;
support for data privacy and encrypted peer-to-peer connections;
low transaction fees.
“CeDeFi lets you experiment with DeFi products like decentralized exchanges (DEX), liquidity aggregators, yield farming tools, lending protocols, and much more for a cheap transaction fee. Businesses can use CeDeFi to develop custom smart contracts and add many products and services to a single platform, resulting in faster transactions and lower risk.”
Source: Blockchain Council
Differences between CeDeFi and DeFi
CeDeFi protocols are “similar” to DeFi protocols but offer different services like creating and trading synthetic assets. Thanks to their centralized nature, they are faster and more user-friendly than the second one and use a system of smart contracts to mint new tokens. This feature allows traders to trade derivates without relying on a third centralized party.
Using a CeDeFi protocol has a lot of benefits like accessibility, interoperability, and flexibility. Everyone can use a HyFi protocol and all their possible applications to create various derivates products.
Benefits of HyFi
Hybrid Finance is a new form of finance that mixes up CeFi and DeFi and revolutionizes the entire sector of blockchain technology. In other words, it is the opposite of what we have defined as traditional finance (TradFi).
HyFi offers many strong points:
Higher security and privacy levels because of the use of a decentralized system that makes it more difficult to track transactions by a third party;
Increased speed due to no need for approval by a trustee third-party;
Reduction of fees thanks to no middleman involved;
Unizen is a smart CeDeFi ecosystem which combines CEXs and DEXs functionalities to meet the needs of retail and institutional traders. Unizen can find the most cost-efficient trades across many exchange modules to provide the best offers, reliable performance, and a secure environment for high-volume trading on a useful, user-friendly platform.
Yanda is a HyFi protocol built to bridge the gap between centralized and decentralized finance. It enables a new generation of Hybrid Finance dApps to emerge, connecting CeFi and DeFi and storing data on-chain. Moreover, Yanda creates validation and verification logic to monitor off-chain operations.
This protocol solves two major problems regarding CeFi and DeFi. With Yanda, you can exchange assets between multiple networks, reducing slippage and costs, using the security of a CeFi environment because it saves data on-chain and checks their legitimacy and purpose through validator pools.
To better understand the Yanda protocol.
From DeFi and CeFi to CeDeFi
The events related to FTX are pushing the adoption back to DeFi, following the religion of "Not your keys, not your coins". Although this is true, DeFi still has a lot to improve, and CeFi too.
CeDeFi protocols have significant potential for growth, revolutionizing the way financial products are traded and modifying the fintech industry.