What is CeFi (Centralized Finance) and does it exist in crypto? - Crypto in Plain English - Episode 193 - by cryptohunt.it

What is CeFi (Centralized Finance) and does it exist in crypto?

Welcome to our cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

CeFi, short for “Centralized Finance”, refers to a form of banking or trading where your money is either held by a centralized organization, or passes through it.

Traditionally, this concept obviously applies to the existing financial system: Banks, stock exchanges, etc. are all centralized. But you’d be surprised to hear: It also exists in a world that strives to be decentralized: Crypto!

The thing is: When you buy crypto through an exchange like Coinbase, that’s CeFi, because there is still a company aggregating all the business and doing all the work. The same for stable tokens that have a reserve managed by a single entity, like USDC. Or those lending portals like Celsius that made negative headlines recently.

And, ideology aside, that isn’t a bad thing per se. Coinbase can offer you free token swaps because they technically don’t buy or sell anything. They just move things around in an internal account. And managing a stablecoin reserve through a single entity allows that company to do all the regulatory and compliance work that helps with building consumer trust.

But it could be a bad thing when that organization doesn’t mean well or is incompetent. In the case of Celsius for example, they locked all customer withdrawals. So you are exposed to arbitrary decisions those companies make about your money.

As you see… there are pros and cons. Is CeFi good or bad then? As always, it depends!

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.