The defining difference between centralized and decentralized finance is the involvement of an exchange. In centralized finance, the system is governed by exchanges. Whereas in decentralized finance, it is technology-dependent. DeFi users access financial services through DApps as discussed before.
This distinction rests on a more significant differentiator that is often overlooked. Due to the involvement of exchanges in CeFi, users transfer their risk to the exchanges. Therefore, exchanges are in charge to keep users’ funds safe.
In DeFi, these intermediaries are cut off. The transactions happen on the belief that smart contract protocols will work well.
There are some other differences as well. For example, centralized finance helps with fiat to crypto conversions and cross-chain solutions. If required, centralized finance is also able to move funds to help its customers or to block trading in case of a negative event such as a hack. On the other hand, DeFi is considered more transparent and non-intrusive because it does not ask for any personal information of the customer and is non-custodial. DeFi can also not block trading or put restrictions on users whereas CeFi can.
