CeFi vs DeFi: What’s the difference and which is better?

There’s an argument that Decentralized Finance (DeFi) can take over Centralized Finance (CeFi), but there is much to say about the existence of both. While CeFi and DeFi can provide financial services such as crypto exchange, lending, borrowing, and staking, the execution of these services remains to be different. We’ll give you some poignant pros and cons between the two to help you decide which one is better for you.

First, let’s define the main topics:

Centralized Finance If you look at it from a beginner’s standpoint CeFi products and services look much like the traditional finance model. They both have a centralized point of authority, run with intermediaries or middlemen, and your money is kept by a custodian. CeFi and banks are also governed by regulations.

Decentralized Finance Decentralized Finance or DeFi is a newer concept that aims to take away the middlemen and the central authority. It wants you to have power over your money because you are the custodian. DeFi is governed by the shareholders or token holders and the decisions are made through them with the assets they hold acting as voting rights.

What are the differences between CeFi and DeFi?

Management CeFi relies on a central authority that governs its processes, much like the central bank having power over fiat circulation. The DeFi space can be ruled by governance tokens which act as voting rights when changes in the protocol are necessary.

Custodian CeFi exchanges, for example, use the custodial wallet model, wherein you entrust your assets to the exchange. DeFi, being trustless, can make use of a non-custodial wallet, wherein you are the only one who knows your private keys. You have total control of your assets in a non-custodial wallet, but it also means you are responsible for its security.