The encryption industry has been developing for more than ten years. Cefi and Defi, two strong financial sectors, have run through the cycle. In an industry known as decentralization, Cefi is obviously more mainstream now.

This article will explore the fundamental differences between Defi and Cefi, and why Defi may never surpass Cefi!

1. What is Defi and what is Cefi?

The fundamental difference between the two is: who controls the money. The funds in Defi are at your own disposal, while in Cefi you hand over your money to a platform for custody.

  • DeFi =Decentralized Finance Decentralized Finance

  • CeFi = Centralized Finance Centralized Finance

The most obvious concept is the exchange sector, which is also what we generally know as Cefi and Cefi. The two corresponding extended concepts are Cex and Dex.

The concepts of exchanges in these two different formats provide the industry with very rich trading scenarios. It can be said that if there were no exchanges, the development of the crypto industry would not be so fast. The saying that circulation generates value is reflected in exchanges. The ground is vivid and vivid.

But although they are both exchanges, their asset holding methods are different. One is that we hold the funds ourselves, and the other is that we hand over the money to the exchange and let them help us manage it. This is why after thunderstorms occurred in many centralized exchanges, users suffered huge losses. It is because of you. Give your money to the platform, and some platforms will divert your funds elsewhere. #DeFiChallenge

  • Once it is misappropriated and exposed, it can be devastating for a trading platform if it cannot fill this vacancy: refer to the thunderstorm of FTX~

Dex, on the other hand, completely holds funds by the users themselves. It can even be said that DEX only meets user needs in one direction and does not retain funds in the contract (unless you form an LP)

2. The core differences between Defi and Cefi

Based on the above differences between DEX and CEX, we can extend it to Defi and Cefi. In encryption, we judge whether the project is decentralized based on whether the user holds the assets independently.

Because some projects, even under the banner of decentralization, are still doing "semi-managed" things.

And we also need to make it clear whether this project is technically decentralized or governance decentralized, because many technically decentralized projects still have one main body in governance.

But even so, ensuring technical decentralization can further ensure the autonomy of user assets. If autonomy is guaranteed, security has to be taken care of on its own to some extent~

3. The respective pain points of Defi and Cefi

To extend what I said above, Defi needs to manage its own assets. This can be said to be both an advantage and a disadvantage of Defi. Just imagine, if a wrong account transfer occurs, it will be difficult or even impossible for you to recover the assets at this time.

And if you lose your assets in an exchange or custodial wallet, you only need to contact the project team to find ways to recover your assets.

Providing artificial services, I think this is the core of why Cefi can always be better than Defi, and I think the scale of Defi will never surpass Cefi, because people can make a lot of flexible expansions, and technology can only meet the corresponding needs (it is undeniable Yes, decentralized communities will be very bloated to perform expansion actions)

Therefore, the word decentralization can almost be said to be a double-edged sword in some cases. You cannot truly understand the feeling of losing assets if you have not experienced it. There are even countless people in the industry who have lost their mnemonic words. There are many examples of huge losses of wealth.

In addition, various scams are now rampant. Users will create multiple decentralized wallets for security, but this will also extend a problem: the complexity of wallet management. #DeFiCeFi

  • These are the “decentralization pain points” that I have personally experienced

As for centralized exchanges, they are only criticized for their centralization. After all, in an industry that focuses on decentralization, centralization seems like a mistake, but as I said above, it is still what a centralized platform can provide. Services can provide a wider range of needs and even solve some problems that are difficult to solve with decentralization.

To sum up, encryption sometimes feels like: success is decentralized, failure is also decentralized~