DeFi, and CeFi platforms, are not direct replacements for each other, as these products, built with both models have unique roles to play in the adoption of crypto globally. Speaking at a panel session at the Consensus 2023 event by Coindesk, Nathan Cha, Marketing Lead at crypto derivative exchange dYdX said that the complexity of DeFi systems makes it hard for a lot of users to be onboarded into the crypto industry.
He gave an instance with his grandparents, who he thinks are unlikely to use Metamask to buy Bitcoin if they want to buy the asset because of the complex and risky nature of Metamask, which includes the user being responsible for their private key. Thus, CeFi can and has made it easier for anyone to use crypto today.
On the other side of the equation, Sidney Powell, the CEO of Maple Finance, a crypto lending platform, said that while CeFi is easier, recent events have shown that some CeFi platforms are not always transparent, and may not use blockchain as their core infrastructure, such as BlockFi and Celsius Network.
He added that DeFi platforms such as Aave, Maple, and Compound are more transparent relative to how funds are stored and transferred. “You can see the movement of funds at all times, and it’s always controlled using Solidity and using smart contracts”.
Custody separates CeFi and DeFi
The CEO of Maple added that while the major difference between CeFi and DeFi is self-custody, at the infrastructure level, “it’s the use of smart contracts and a blockchain to actually operate the business.”
Because of adoption, CeFi will remain the preferred choice in the short term, as it’s easier for both existing and traditional users.
Speaking more on the usefulness and advantage of CeFi, Salman Banaei, Head of Policy at Uniswap Labs, explained that the regulatory framework present in the crypto industry favors CeFi over DeFi, so CeFi has an upper hand to attract users and drive adoption at this time.
DeFi is disadvantaged on the regulatory aspect since it is technology-controlled, but with time, while CeFi will continue to play its role, DeFi will be the most preferred system in the financial space, Banaei said.