What is CeDeFi?
Updated: Apr 14
Nowadays, the financial system has been split into centralized (CeFi) and decentralized (DeFi), and you need to choose between them when you buy, sell, earn and trade your crypto assets.
But why choose between two when you can have both?
CeDeFi is the solution, a perfect merger between both systems, which brings the best features of centralized finance and decentralized finance.
As we explained in our previous article about HyFi, the acronym CeDeFi was used for the first time by the CEO of Binance, Changpen Zhao, aka CZ, in September 2020, during the launch of its Binance Smart Chain.
This is a fairly new trend in the crypto industry and is attracting the interest of many investors, developers and users. Let’s find out in detail what it is and what innovation brings to the market.
Here is an accurate definition of CeDeFi.
Pros and Cons of CeDeFi
CeDeFi brings the best characteristics of CeFi and DeFi, promising a definitive way of enabling crypto-savvy to operate on secure exchanges while providing access to high-liquidity projects.
Combining these two systems benefits traditional systems' regulatory safeguards and offers a better and more innovative financial infrastructure and products. It aims to create a new user experience that empowers customers to trust and verify services.
The benefits of using CeDeFi protocols are countless because a hybrid ecosystem aims to improve the traditional crypto model to allow faster transactions, improved security, a larger transaction volume and lower fees.
Among the major advantages, we can summarize
Although CeDeFi protocols getting popular in the industry, this is still a new concept in the crypto ecosystem, and there are some downsides associated with the hybrid financial system such as
Complexity of development
Dependence on Ethereum
Risk of scams
Read this article to know why does CeDeFi matter.
3 examples of CeDeFi exchanges
Coinzoom is a CeDeFi crypto exchange focused on a one-stop-shop that supports trading with more than 30 digital assets and offers a Visa debit card for crypto spending.
“We offer more than just an avenue for investing in crypto; we make it easy to spend your crypto through our Visa debit card and send your crypto to friends and family overseas instantly for free through our ZoomMe feature.” Coinzoom’s CEO Todd Crosland
This exchange bridges the gap between traditional finance and the crypto world through ZOOM -its Ethereum-based token- allowing users to interact with its decentralized ecosystem earning a lot of DeFi benefits based on a hybrid infrastructure that brings together CeFi and Defi.
Nexo is mostly a CeFi ecosystem that offers a wide range of services like an exchange platform and its related borrowing service. This business is governed by a DAO with the NEXO token and provides innovations with a regulated building ecosystem through its expertise, connections and licenses worldwide.
Bybit is a crypto derivates exchange that offers centralized products in a more decentralized way, creating a CeDeFi ecosystem. Although it launched decentralized products, it also remains regulatory compliant.
“Our goals align with regulators - we think a crypto-native approach is better for crypto. Eventually, Bybit will follow the decentralized path, delivering our centralized products in a more decentralized way.” Bybit’s CEO, Ben Zhou.
A compelling overview of CeDeFi.
Which innovation brings CeDeFi into the market?
The key feature of a hybrid protocol or project is the trade aggregation algorithm, which allows CeDeFi platforms to offer the best execution and settlement for their traders using Data Collector APIs that consume and parse trade data from the custom and third-party modules of the CEXs and DEXs.
Moreover, CeDeFi platforms enable local validation of transactions and reduce the required time for broadcast on-chain to provide faster confirmation. Running node infrastructure is also necessary to facilitate staking on the CeDeFi platform -since most blockchains are now transitioning into Proof-of-Stake consensus models- realizing and distributing competitive staking rewards to its users.
The application of a hybrid financial system can change the financial landscape, making payments faster and more affordable. DeFi started gaining users' attention seeking democratic control over financial transactions. Today, the purpose of CeDeFi creates many concerns for financial services, especially regarding security, management, and transparency.
CeDiFi's potential is still untapped, but its expansion through platforms like Yanda will pave the way for its widespread adoption. This new approach to transparency and security will significantly benefit customers and investors to explore cryptocurrency opportunities.
At least, CeDeFi meets the core needs of institutional and retail consumers across the need for high liquidity, vetted products, and higher asset availability, reducing slippage. Its architecture is innovative and can provide cross-chain services and chain-agnostic products.