Decentralized finance, or DeFi, has established itself as a force capable of disrupting traditional systems. While DeFi is still the major opposition to traditional finance, the centralized operators are actively looking to integrate into the established system. As a result, the institutional interest pushes both decentralized and centralized participants to ask questions about DeFi, its roles, and a possible collaboration with centralized finance, or CeFi.
A Compromise Between Defi and Cefi
The CeDeFi concept might seem far-fetched to some: How can something be centralized and decentralized at the same time? However, for institutions and DeFi alike, CeDeFi might be a solution to both systems’ problems.
The first thing to clarify is the intent of institutions. If the idea of centralized organizations getting closer to DeFi seems threatening, remember they are doing it just because the DeFi is centralized. Banks, investment firms, and hedge funds are interested in having a higher degree of autonomy. Not ruling out those who are there make a profit, CeFi is actually full of those who understand the genuinely revolutionary implications behind the technology.
So, CeFi is more than happy to welcome DeFi’s values, if only it will meet (at least) these three crucial criteria: 1) full compliance, 2) secure and reliable performance, and 3) deep liquidity.
What are the benefits of the DeFi-CeFi amalgamation?
Institutions work with governments, large companies, research foundations, etc., to build infrastructures that have impacted billions of people’s lives for hundreds of years. At the very least, the cooperation with CeFi is an important step towards the global adoption of De-Fi.
Decentralized innovation doesn’t have to be confined to a limited number of first adopters. Integrating CeFi will birth other benefits, such as:
• Preparing a favorable position for regulatory discussions. The market boom of 2021 predictably culminated in the highly increased interest of regulators. With DeFi handling a lot of capital (around $116 billion in total value locked, or TVL), the need for a comprehensive legal framework is not just evident — it’s a pressing one. How DeFi performs now in terms of security, investor protection, secure custody, and development of beneficial use cases will influence the regulatory stance and how DeFi fares in the next years (or decades).
• Scaling DeFi infrastructure. It’s impressive that DeFi now handles billions of dollars in such a short time. However, CeFi has been handing trillions for centuries. Institutions have already established mechanisms for working with large capital, but such tools are just emerging in DeFi. Yes, DeFi is revolutionary in terms of tech, but CeFi is undoubtedly more experienced in responding to market and governmental pressures. These experiences and practices can be combined to improve both systems in the long run.
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