What is DeFi? How is bitcoin related to it? There are many such questions in our minds, so let’s first see what DeFi is and how it works with cryptocurrencies. So, DeFi stands for “Decentralized Finance,” which is dependent on blockchain and thus works with bitcoin.
What is centralized Finance (CeFi)?
In centralized finance, all trading is handled by a central crypto exchange like banks or some financial institution. It means customers are not allowed to have direct access to their coins. This centralized exchange was responsible for deciding the coins available for trading and even the fees to exchange them.
In CeFi, customers are required to follow the rules set by the financial institution, and they even don’t own the coins while working under CeFi. There was a time when cryptos were traded under CeFi, but now the case is quite different.
DeFi came into existence, and thus, buying or selling cryptos was not under centralized finance. It helped to expand the blockchain platform and also increase the reach of the people.
What is Decentralized Finance (DeFi)?
It is finance where there is no centralized exchange like a bank or organization. Everything is processed under automated applications that are built according to the blockchain. It’s a financial system where everyone can trade no matter whether they are involved in a ban or organization.
The working of DeFi is fair, and also it maintains transparency with their customers. It deals with every aspect like borrowing, lending, storage of assets, and much more. Thus, customers can avail all the services that they look for in centralized finance. If you want to know regarding the working of Defi or components of DeFi, read this article.
The best part is customers own coins and have complete control over them. There are no predefined rules like CeFi, and all the working is done through Decentralized Applications, also known as “DApps.” Customers are also required to use these apps to access the DeFi services and thus get a clear understanding of the work.
DeFi vs CeFi (Comparison chart)
|Technology is responsible for security||The security is dependent on the centralized organization or bank|
|Investors hold the money||Money is under control of centralized exchanges|
|Everyone can trade in DeFi||It is important to be the part of financial organization|
|The market is working 24*7 and thus it||Need to follow the timing of banking|
|Becomes easy to manage||Organization|
|Offers borrowing, trading and lending||Fiat-to-crypto, payments, lending, borrowing and trading|
|Market cap of DeFi is more than $16 billion||The market cap is $324 billion|
Decentralized Finance is one such financial system where investors are free to work with their strategy and are no required to deal with any centralized financial system. The infrastructure of DeFi is still in progress, but it will be able to build a new environment for trading in cryptocurrencies in the future.
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