What is CeDeFi?

CeDeFi, which stands for Centralized Decentralized Finance, is a term used to describe financial systems that combine elements of both centralized and decentralized finance. CeDeFi systems are typically built on top of existing centralized platforms, such as traditional banks or payment processors, but also incorporate decentralized technologies like blockchain and smart contracts to provide additional features and benefits.

One of the main advantages of CeDeFi systems is that they can provide users with the security and transparency of decentralized finance, while also leveraging the existing infrastructure and regulatory compliance of centralized finance. This allows CeDeFi systems to offer a wider range of services and products, such as lending and borrowing, and to reach a larger audience of users.

CeDeFi systems can also help bridge the gap between traditional financial systems and decentralized finance by making it easier for users to access and use decentralized services and products. This can be especially important in countries where access to traditional financial services is limited or where regulations are not favorable for decentralized finance.

Simplified Example

Imagine you have a digital wallet where you can do different things, like saving your money, borrowing some, or even trading digital assets like cryptocurrencies. Now, this digital wallet works a bit like a mix between a regular bank and a community savings club. Some parts are managed by a group of computers that work together (kind of like friends in the savings club) to make sure everything is secure and fair. These parts are called decentralized. But there are also some parts that are managed by a company or a team, sort of like a regular bank that helps keep everything organized. This mix of computer systems and people working together is what we call CeDeFi – it's like having the best of both worlds, with some things managed by everyone and some things managed by a central group.

Who Invented the Term CeDeFi?

Changpeng Zhao, commonly known as CZ, is a Chinese-Canadian entrepreneur and executive known for founding and leading Binance, the world's largest cryptocurrency exchange. He is also the founder and CEO of Binance Smart Chain, a blockchain network that supports decentralized applications (DApps). He coined the CeDeFi term when the Binance Smart chain was launched.

CZ's contributions to the cryptocurrency industry are undeniable. He is credited with popularizing the concept of cryptocurrency derivatives and with transforming Binance into the world's most successful cryptocurrency exchange. His vision for CeDeFi, a hybrid financial system that combines elements of centralized and decentralized finance, has the potential to revolutionize the financial landscape.

Examples

Centralized Order Book with Decentralized Settlement: A centralized order book with decentralized settlement is a popular CeDeFi model that combines the convenience of centralized exchanges with the security of decentralized settlements. In this model, the exchange's order book is maintained centrally, while the settlement occurs on a decentralized blockchain network. This allows traders to benefit from fast and efficient order matching, while also enjoying the security and transparency of blockchain-based settlements. Some popular examples of CeDeFi exchanges that use this model include Bitfinex, Kraken, and Binance.

Hybrid Decentralized Lending and Borrowing Platforms: CeDeFi lending and borrowing platforms combine the best of both worlds by offering the benefits of centralized lending platforms with the transparency and security of decentralized blockchain networks. In this model, the lending platform is centralized, while the underlying smart contracts and token transfers are decentralized. This allows lenders to benefit from a high level of liquidity, fast transaction speeds, and lower transaction fees, while also enjoying the security and transparency of decentralized settlements. Some popular examples of CeDeFi lending platforms include Nexo, Celsius, and BlockFi.

Centralized Compliance and Decentralized Trading: Centralized compliance and decentralized trading is another popular CeDeFi model that aims to provide a secure and compliant trading environment. In this model, the exchange is centralized and complies with regulatory requirements, while the trading occurs on a decentralized blockchain network. This allows traders to enjoy the benefits of a secure and compliant trading environment, while also benefiting from the transparency and security of blockchain-based transactions. Some popular examples of CeDeFi exchanges that use this model include BitMax, Huobi, and DODO.

Overall, CeDeFi is an exciting and evolving area of finance that aims to bridge the gap between centralized and decentralized finance. It offers a range of benefits to users, including faster transaction speeds, lower transaction fees, and increased transparency and security. While there are some challenges and regulatory concerns associated with CeDeFi, it has the potential to revolutionize the way we think about finance and create new opportunities for innovation and growth.

Related terms

• Brian Armstrong: Brian Armstrong is a well-known entrepreneur and technology executive in the cryptocurrency and blockchain industry.

• Centralized Exchanges: Centralized Exchanges are cryptocurrency marketplaces where trading is facilitated between users by an order book maintained by aggregated order systems where the custody of deposited funds on the exchange is taken over by the company.