#DEFI…

DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries. DeFi draws inspiration from blockchain, the technology behind the digital currency bitcoin, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.

#CEFI…

TradFi consists of legacy institutions that have existed for centuries and are about to venture into the digital asset space, while CeFi refers to digital asset companies that offer crypto-related products and services.  Among CeFi platforms, there are centralized crypto exchanges (CEXs), crypto lending companies, and digital currency payment providers. They provide custodial hot wallets to their users. That means the platforms actually hold the private keys of their users’ wallets and are, therefore, in control of their crypto assets. That leaves users at the mercy of these platforms should the latter decide to suspend their clients’ accounts and block their withdrawals.  Users are also subject to the rules that CeFi companies make. These rules are typically made behind closed doors, just as is the case in the traditional world of finance with private companies. For instance, they decide what rules their customers should follow and which coins will be listed.  Additionally, CEXs generally require users to complete the Know Your Customer (KYC) process before they can start trading.

CeFi is an easy point of entry for crypto beginners because of its similarities to TradFi. Before DeFi emerged, centralized finance platforms were the conventional places users would go for trading