Less CeFi; More DeFi - The Daily Gwei #514
Changing the world one protocol at a time.
Over the last few months we’ve all seen the perils of the ‘CeFi’ or ‘CeDeFi’ ecosystem laid bare - from billion dollar funds blowing up to centralized services gambling with user funds - it has not been a pretty sight. Of course, this is all due to poor risk management, no accountability, extreme opacity around CeFi operations and a complete lack of self-regulation and accountability.
I get why CeFi exists and I get why people use it - I use it too as a fiat on/off-ramp - but what I don’t understand is how people are willing to throw their hard-earned money into something that they have no visibility over. I mean, DeFi isn’t perfect and there have been plenty of examples of that, but at least you get the on-chain transparency so that you know where your money is at all times. With CeFi services, you have absolutely no idea what’s happening to your money - essentially, once you deposit those funds into a CeFi platform, you just get an IOU promise from the platform that may or may not be paid back at a later date.
DeFi is still the greatest innovation that Ethereum has given us - by far - and I think we all take it for granted. Think about it for a second - anyone around the world with a smartphone and an internet connection is able to be their own bank and they are able to keep track of their funds at all times. Ethereum also offers more than just transparency - it offers credible neutrality, decentralization, high levels of security and censorship-resistance. It is essentially impossible for CeFi to offer any of these - even if they were being radically transparent - because you’d still have to trust them whereas you don’t have to trust DeFi on Ethereum - you can verify it for yourself!
That’s another thing that DeFi gives us - the ability to trust code instead of people. When I deposit my funds into a truly decentralized protocol like Uniswap, I don’t have to worry about any humans interfering with those funds - the only (small) risk I’m taking is smart contract risk. At all times, from anywhere in the world, at any time, on virtually any internet-connected device, I can keep track of my funds. Think about how big of a leap that is for humanity - really think about it - it’s not just marginally better than CeFi (and TradFi); it is exponentially better.
DeFi isn’t just about building a decentralized financial ecosystem - it’s also about putting the power back into the people’s hands and allowing them to have complete control over their finances with radical transparency. So let’s stop building, promoting and using all of these CeFi services and let’s keep focusing on growing the DeFi ecosystem.
After all, we’re here to change the world, aren’t we?
Have a great weekend everyone,
Anthony Sassano
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All information presented above is for educational purposes only and should not be taken as investment advice.