The transparency of decentralized platforms is something that can benefit CeFi. Analysts consider that the best solution may be to merge them into CeDeFi.

The adoption of cryptocurrencies and blockchain technology has continued to grow despite the prolonged collapse in the industry. The market has over 300 million users and holders of cryptocurrencies worldwide, while over 18,000 companies accept them for their products or services.

Analysts consider the profitability of cryptocurrencies as one of the main drivers of mass adoption. Users are aware that keeping their holding in the long term is just one strategy, far from being the most profitable.

Investors can grow their digital wealth by lending their assets, borrowing money against crypto collateral, or engaging in yield farming.

Returns are the main driver of the crypto economy as it helps users maintain financial stability amid bearish markets. However, experts indicate critical flaws in the wealth management models of yield farming.

CeFi and DeFi Compared regarding Security, Flexibility, and Volatility

CeFi is reportedly safer and more reliable, but DeFi offers the possibility of higher profits despite high risks and volatility.

When holders stake their cryptocurrencies on CeFi platforms, borrowers receive it as a loan with fixed repayment rates. That creates an excellent financial cycle that contributes to the stability of the model.

On the other hand, DeFi platforms use variable rates, which may vary depending on the liquidity pool or the issuance rate of the token.

The Estimation of Risks Allows Increasing Liquidity

An increasing number of lenders flock to a platform as it gains popularity, hoping for higher returns. That causes the liquidity in the liquidity pools to increase and the premiums to decrease.

On a CeFi platform, fixed interest rates allow maintaining liquidity by sacrificing capital or limiting the deposit amount for lenders. Besides, the complexity and volatility of DeFi make it harder to integrate new users.

However, drawbacks in the CeFi model show the need for an upgrade, explained in the following lines.

It Is Necessary to Reboot Centralized Finance to Benefit Users

CeFi platforms may maintain a fixed interest rate by spreading their capital across different types of assets. That involves DeFi protocols, liquid assets (stablecoins), and long-term crypto institutional loans (3ACs).

However, centralized platforms risk losing much of their capital and compromising user funds and wallets. In addition, there is the issue of trust as a centralized platform trades assets through a third party, which retains control over them. On a DeFi platform, investors are the only ones controlling private keys and wallets.

CeFi offers many opportunities for sustainable investments in cryptocurrencies. Its high-interest fixed model allows considerable returns, impossible with DeFi, and keeps financial stability.

However, the above issues may pose significant risks to user assets. The transparency of decentralized platforms can benefit CeFi if it adopts it. The best solution would be to combine both platform types into CeDeFi to help those trading cryptocurrencies better.

By Alexander Salazar


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