The movement from Centralized Finance (CeFi) to Decentralized Finance ( DeFi) has taken shape as cryptocurrency move towards mass adoption. The concept of decentralizing the financial system is holding a great future as humanity strives to change the ways of doing things by creating order, reliability, and trust in the system.
CeFi allows all orders to be controlled in a central exchange without competing parties. They are focused on conducting a fair trade as it is designed in a way that all orders are channeled through a central exchange. All price on the exchanges is the only available prices.
The current financial system is highly centralized where the government through the central bank print and regulate the currency. In a centralized system, you need to trust a third party to secure your asset and money as they have full control over them.
Advantage of CeFi
- They assure flexible fiat conversion. Hence, exchanging between crypto and fiat is quite straightforward.
- Availability of cross-chain services as the exchange support cryptocurrency from independent blockchain platforms.
- They have additional features.
- CeFi platforms are easy to regulate.
- Centralized exchanges facilitate fair trade.
DeFi protocols on the other hand offer alternative to the traditional financial system. They eliminate third parties giving users the liberty to independently manage their funds. Defi allows users to confirm their transactions on the blockchain as they hold their private keys.
Advantages of DeFi Over CeFi
- They allow users to easily access their digital wallets at their convenience without giving out their personal information.
- DeFi gives users the mandate of managing their funds without the need of a third party.
- DeFi protocols are transparent and the data is publicly available on the blockchain.
- They are secure compared to CeFi as they are highly encrypted.
The Future of Finance
Every aspect of humanity is evolving and so is our financial system. Decentralization of our way of life is very important as our lives become more complex. Technology like blockchain is not only important in achieving the decentralization of these aspects of humanity. It also assures liability and transparency in governance and our way of transacting and information sharing.
The rise of DeFi has now attracted a lot of investors compared to its initial stages. This is due to the realization of the downside of a centralized financial system endless information available for investors.
DeFi presents numerous opportunities towards addressing the shortcoming of centralization of our financial system. It gives investors an enthusiast with a different approach of investing their hard-earned cash without involving third parties allowing them to freely opt-in and out of different projects right from their wallets.
Crypto has disrupted the traditional markets and our financial system positively. Take a look at the performance of BTC (Bitcoin) as an example. BTC recently reached $40000 after an uneventful crash in March 2020. In recent data by Crypto.co BTC (Bitcoin) has now a total market cap of $657.4 billion. The number one digital asset is performing well at a time when cash and traditional markets are struggling due to COVID 19.
With so much disruption in global decentralization, our financial system is surely the way to go towards achieving sustainability. Experts predict that DeFi and crypto will have a great impact on the financial system in the coming years. Any bank that will not be offing crypto-related services will face the risk of closing down. This has led to big names in the banking sector to show interest in BTC (Bitcoin) and other cryptocurrencies. As the mainstream is showing increasing interest in crypto, it will be wise for anyone offering financial services to invest in blockchain infrastructure.