Updated: Mar 9, 2021
For over a decade now, cryptocurrencies and its underlying technology, blockchain have been shattering our traditional notions of money and value. Now, with the advent of DeFi (Decentralized Finance), our notions of traditional financial products like loans and savings accounts have been obliterated as well. CeFi (Centralized Finance) offers us yet another alternative, combining the best of DeFi with the governance of a centralized body- generating financial products with ginormous returns. This post will also take a gander at the leading platforms in this space, Crypto.com, Nexo and BlockFi.
The Current Economic Crisis = Perfect for Crypto
Though the hype of cryptocurrencies has yet to hit the highs of 2017, this innovative space continues to surprise the world, especially when the world is in crisis mode. One of the biggest pluses of cryptocurrencies besides its deflationary nature, is that it's also trust-less and decentralized. The current economic crisis due to the ongoing pandemic is the perfect vehicle for such an economic system.
As part of its stimulus plans, the U.S. government printed trillions of US dollars, making whatever money that is sitting in our banking accounts lose value. The government also lowered interest rates, which means investors and income seekers can't find a healthy yield in any traditional financial products. That is until they discovered the healthy yields of DeFi and CeFi, which explains the immense popularity these innovative products are now experiencing.
Two Branches of Blockchain-based Finance
DeFi and CeFi basically make up two branches of the blockchain-based finance. CeFi makes use of DeFi's great technology, but instead of it being governed solely by code and smart contracts, CeFi embraces some centralization.
In other words, DeFi users are entirely dependent on the autonomous code. Due to the potential of bugs being in that code, it's always a good idea to stick with recognizable, dependable DeFi platforms like MakerDao and Compound Finance, which are both accessible through the Coinbase wallet. Or you can simply use CeFi, where investors aren't completely dependent on code and can rely on the intervention of people. As terrible as people can be, at least they can fetch your money where bad code can't.
One thing to note here is that not every centralized exchange (CEX) provides services for CeFi. The big popular exchanges like Coinbase and Binance are embracing the inexpensive, autonomous nature of DeFi platforms. Instead, CeFi platforms like Crypto.com, Nexo and BlockFi have emerged to great success, providing financing services from which users can earn interest or get loans on their cryptocurrency. You can even get credit and debit cards. Let's take a look at the most popular platforms.
Crypto, Nexo, Celsius and BlockFi
In many ways, CeFi platforms work like a traditional bank, only this kind of bank deals with digital-money and has no actual branch. Plus, it's whole business model sits within a blockchain, often with its own native cryptocurrency that keeps everything running. It's this aspect that makes everything faster and more seamless with fewer costs and better yields. Plus, great credit scores are not needed. The leading platforms in this space are Crypto.com, Nexo and BlockFi.
As it says on its website, "Crypto.com is the pioneering payment and cryptocurrency platform." On its platform and exchange, you can earn interest weekly (even 10% annual rates or more), trade crypto, get immediate loans, swap and farm coins and much more. The Celsius Network is a similar platform, except with the added bonus that it shares its revenue with holders of its native cryptocurrency.
Nexo and BlockFi are very similar platforms, in that they act more like traditional banks. However, both have savings accounts in which stablecoins (cryptocurrency pegged by the US dollar) can make on average 10% annually (compounded daily)! No traditional bank can offer that right now. You can also borrow money at competitive terms, plus many other perks.
Getting started with these platforms is as easy as it gets. A user has to register an account on the platform. Then after some necessary steps to verify their identity, the user is then allowed to transfer fiat currency (like the US dollar) through a banking channel. In other cases, the platform will only allow the transfer of cryptocurrencies into their existing wallets before proceeding. Once again, this will require you to first buy cryptocurrency on Coinbase, Binance or another trusted exchange.
Liquidity Through Automation
After the sudden attention that the DeFi space has garnered over the past few months, many platforms are coming up with hybrid DeFi-CeFi solutions. The real motivation behind this is the fact that centralized exchanges are currently more user friendly, especially to the technically-challenged. Decentralized systems offer more liquidity through its automation. Thus the hybrid platforms are combining the best of both worlds. Don't miss out. Happy investing!