DEFI VS CEFI [THE DIFFERENCES 🥊]
The primary difference between DeFi (Decentralized Finance) and CeFi (Centralized Finance) lies in their fundamental architecture and approach to financial services:
Centralization vs. Decentralization:
CeFi: Centralized Finance relies on traditional, centralized financial intermediaries such as banks and financial institutions to facilitate and oversee financial transactions. These institutions control users' funds and data, making them custodians of financial activities.
DeFi: Decentralized Finance operates on blockchain technology, using smart contracts and decentralized protocols to create open and permissionless financial systems. It eliminates intermediaries, enabling peer-to-peer transactions without the need for a central authority.
Control and Ownership:
CeFi: In CeFi, users entrust their assets to centralized entities, which can freeze accounts, impose restrictions, and access user data. Users have limited control and ownership over their funds.DeFi: DeFi empowers users with full control and ownership of their assets. Users interact directly with smart contracts, and their funds remain in their wallets, reducing counterparty risk.
Accessibility and Inclusion:
CeFi: CeFi often requires users to meet certain eligibility criteria and comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, limiting accessibility and excluding those without proper identification.DeFi: DeFi is open to anyone with an internet connection, fostering financial inclusion by providing access to financial services for the unbanked and underbanked.
Trust and Transparency:
CeFi: CeFi relies on trust in centralized entities, and transactions often lack transparency. Users must trust these intermediaries to act in their best interest.DeFi: DeFi transactions are recorded on a public blockchain, providing transparency and accountability. Trust is placed in smart contracts and code, reducing the need for intermediaries.
