DeFi (distributed finance) and CeFi (centralized finance) are two different financial system architectures.
DeFi refers to a financial system built on the blockchain. Its goal is to eliminate dependence on centralized institutions and provide various financial services through smart contracts and decentralized technology. In the DeFi system, various financial operations such as lending, trading, investment, etc. are executed by smart contracts without centralized intermediaries.
This structure makes the DeFi system more open, transparent, and accessible, and provides users with greater autonomy and control. DeFi applications include decentralized exchanges (DEX), lending platforms, stablecoins, prediction markets, etc.
CeFi is centralized finance in the traditional financial system. It relies on centralized institutions such as banks, stock exchanges, and payment institutions to provide financial services. In the CeFi system, financial transactions and services occur on the platforms of centralized institutions. These institutions own users' funds and transaction data, and are responsible for processing transactions, verifying identities, and conducting supervision.
The CeFi system is relatively more traditional, closed, and requires users to trust the institution. CeFi applications include banks, stock exchanges, payment gateways, etc.
There are some differences, pros and cons between DeFi and CeFi. DeFi systems have greater openness and transparency, and users have easier access to financial services and greater autonomy and control. However, due to the lack of supervision and support from centralized institutions, DeFi systems face some problems, such as system security, compliance, and liquidity. The CeFi system is relatively more stable and reliable, and can provide more financial services and guarantees, but it lacks decentralization and openness.
Generally speaking, DeFi and CeFi are two different financial system architectures, each with its own advantages and disadvantages, and can be chosen according to user needs and preferences. With the development of blockchain and cryptocurrencies, DeFi is gradually receiving more attention and adoption, but it still faces some challenges and room for development!