Governance and Control:
DeFi: In decentralized finance, the systems are built on blockchain networks, typically using smart contracts. They aim to eliminate intermediaries and provide open access to financial services. DeFi platforms are governed by the community through decentralized decision-making processes.
CeFi: Centralized finance, on the other hand, relies on traditional centralized institutions, such as banks or financial service providers. These institutions have centralized control over their platforms and operate under their own governance structures.
Intermediaries:
DeFi: DeFi platforms aim to eliminate intermediaries, enabling peer-to-peer transactions and interactions. Smart contracts handle the execution of transactions and automate various processes, reducing the need for intermediaries like banks or brokers.
CeFi: CeFi platforms operate with intermediaries that facilitate transactions and other financial services. Users typically rely on centralized exchanges, banks, or other trusted entities to conduct transactions and manage their assets.
Access and Openness:
DeFi: DeFi platforms strive to provide open and permissionless access to financial services. Anyone with an internet connection can participate, and there are usually no restrictions or requirements for accessing and using DeFi protocols.
CeFi: CeFi platforms often have requirements for user onboarding, such as Know Your Customer (KYC) procedures and identity verification. These platforms can impose limitations on who can participate, particularly due to regulatory compliance or other factors.
Security and Trust:
DeFi: DeFi platforms aim to enhance security through the use of blockchain technology and cryptography. Smart contracts provide transparency, immutability, and automation, reducing the reliance on trust in centralized parties.
CeFi: CeFi platforms rely on established institutions that users trust to handle their assets securely. The security measures in CeFi platforms often involve layers of centralized infrastructure, such as firewalls, secure servers, and private key management systems.
Financial Products and Services:
DeFi: DeFi offers a wide range of financial products and services, including lending, borrowing, decentralized exchanges, yield farming, liquidity provision, and more. These services are typically permissionless, meaning users can access them without needing approval from a central authority.
CeFi: CeFi platforms offer traditional financial products and services such as banking, lending, trading, and investment options. However, the availability and accessibility of these services may vary based on the platform's regulations, terms, and conditions.
It's worth noting that the lines between DeFi and CeFi can sometimes blur, as some platforms combine elements of both. Additionally, while DeFi aims to decentralize finance, it doesn't necessarily mean that it operates outside regulatory frameworks. Compliance and regulatory challenges are still being addressed within the DeFi space.
