While the broader world is grasping the growing divide between traditional and digital finance, the digital finance world is increasingly growing divided between the roles of CeFi (Centralized Finance) and DeFi (Decentralized Finance).
While others offer a far more eloquent breakdown of the differences, it can be summed up simply as trusting a company or organization to offer and execute on services (CeFi) or entrusting the technology/code through the open source community to ensure services are as offered (DeFi). Examples of CeFi include traditional banks like RBC or platforms such as Binance. DeFi would include lending platforms like Compound and Aave or Decentralized Exchanges (DEX) like UniSwap (UNI) and PancakeSwap (CAKE).
In our experience, crypto purists land on the side of DeFi. Believing that a user governed open source platform will constantly evolve to meet users’ needs. In the ideology - “of the people, by the people, for the people.” They tend to especially side on DeFi projects built on the Ethereum protocol.
On the other hand, few can argue with the impact CeFi has had on digital asset ecosystems. Providing a somewhat familiar on ramp/off ramp and quickly packaging products and solutions that the market needs.
From Avicenna’s perspective, there is a role for both. The exponential growth we saw in 2020 was highlighted by DeFi’s innovation and ingenuity, but simultaneously supported by the mainstream users that embraced CeFi service providers like Coinbase, Binance and Kraken.
It is important to highlight that the future adoption of crypto into mainstream finance is heavily predicated on the success (and failures) of CeFi, CeDeFi and DeFi. There will be winners and losers; however, we are currently seeing degenerative gambling (degens) where many investors jump into projects at scale for a quick exit (ape in). It reminds us of the ICO days from the crypto bubble in 2018, and feels like another necessary evil that will get peoples' foot in the door. As you learn more about new DeFi projects, staking, yield farming and lending, it's important to be mindful of the risks associated with each of them.