You’ve probably seen these terms come through dozens of times. When we talk about cryptocurrencies, we now think of DeFi, but also more and more of CeFi. What are these acronyms, and what are the most promising companies in these sectors of the cryptocurrency economy?
What is the difference between DeFi and CeFi?
What should we understand when talking about DeFi?
This acronym stands for Decentralized Finance and non-billing: Decentralized Finance.
The principle of Decentralized Finance is to allow everyone to invest (their cryptocurrencies) without going through a central body, such as a bank, a hedge fund, or any system managed by a third party. You thus reduce the risk of theft, bankruptcy, falsification, and management problems that you will not have committed yourself. In addition, you remain anonymous because you are not subject to any KYC (Know Your Customer) to invest in your cryptocurrencies.
What are the characteristics of DeFi?
- DEX for Decentralized Exchange
- Transparent and Anonymous
- Capacity for innovation
- No barrier to entry.
What should we understand when talking about CeFi?
CeFi or Centralized Finance (Centralized Finance) is equivalent to a cryptocurrency bank. One could rightly imagine that this concept goes against the very creation of Bitcoin and cryptocurrencies. However, CeFi has the advantage of allowing people wishing to enter this new economy to benefit from logistical and technical support with higher interest.
Centralized finance is, therefore, the creation of cryptocurrency banks that allow individuals to borrow (fiat or crypto) or lend money (cryptocurrencies) in exchange for interest. The bank acts as an intermediary between the two parties and takes a percentage in passing. It is easy to imagine broadening their jurisdiction in the coming years to take precedence over traditional banks or to fill the gaps in them.
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What are the characteristics of CeFi?
- CEX for Centralized Exchange
- Cross-chain services (Unlike DeFi, which only operates on a blockchain)
- Fiat/crypto exchange facilitated
- Delegation of its assets.
Defi players around the world
You probably know the DAI. It is an ERC-20 type stablecoin (developed from the Ethereum blockchain) backed by the US Dollar. Developed by Maker, this cryptocurrency is decentralized, unlike Tether with its $USDT or the $USDC of Coinbase. The advantage of Maker is that it is its community that votes the rules. To do this, you must hold your $MKR token.
A compound like Aave offers a system of tokens indexed to the value of the cryptocurrency you delegate. cTokens are ERC-20 compliant and work like other assets. Each market has its supply interest rate (RPA). Interest is not distributed; you will earn interest simply by holding tokens. cTokens accumulate interest through their exchange rate – over time, each token becomes convertible into an increasing amount of its underlying asset, even if the number of cTokens in your wallet remains the same.
Aave works much the same way as Compound. Available on some wallets like Money or Trust Wallet. The principle is quite simple. You convert your tokens in parity 1:1 against tokens (example 1 BAT = 1 aBAT) created at the time of the “sale” and destroyed at the time of redemption. Your BAT tokens remain in your wallet while the tokens are exchanged and earn you interest.
CeFi hot companies
Celsius Network — [REKT]
Since writing this article, Celsius has gone bankrupt for multiple causes, including mismanagement of funds by the founders (who have since left the company). It is no longer possible to withdraw or deposit funds on the platform.
Celsius Network is an iOS/Android cryptocurrency lending app. Concretely you deposit your cryptos in your account, and Celsius will use them to allow other users or institutions to borrow them against fiat money by pawning cryptocurrencies on their side. For this, you are paid with interest rates ranging from 2 to 3% up to 12% on stablecoins like $USDT.
With nearly 130,000 active accounts on its platform and new fundraising in which Tether has invested $ 10M, Celsius Network is becoming a must in cryptocurrency lending.
On the same principle as Celsius, Nexo is a cryptocurrency lending company. It is possible to borrow or lend Bitcoin, Litecoin, Ripple, and stablecoins but also euros with an annual rate of 10%. Small singularity Nexo also offers a credit card and cashback using its card.
Nexo was in turmoil in March 2020 during the stock market crash that plunged Bitcoin and cryptocurrencies. Some customers have had their Bitcoins liquidated to keep the platform afloat.
They are challenging to miss as they are present on the internet and social networks. With its ultra-aggressive marketing campaigns and promotional offers, Crypto.com is one of CeFi’s best-known players. Everything is present: an exchange, an application to buy cryptos, a credit card, cashback etc.
Be careful, however, to correctly measure the risks. With its recent setbacks with Wirecard (payment solution for its credit cards) and its immensely (too) engaging campaigns, Crypto.com has not yet revealed its true nature or erased its youthful mistakes.
BlockFi is another lending solution. A significant player in the United States BlockFi allows its users to earn between 8 and 9% annually by lending their cryptocurrencies. It is now possible to trade in several cryptocurrencies through the platform.
The Libra project developed by Facebook should undoubtedly fit into the logic of CeFi with its wallet Novi (formerly Calibra); it is also the latter that raises many questions for institutions and the DeFi sector.