Contrary to popular belief, CeDeFi does not compete with DeFi but compliments it and makes it more flexible and user-friendly.
The feud between traditional finance and cryptocurrencies is quite popular. But, even within the crypto world users are torn between centralized finance (CeFi) and decentralized finance (DeFi). It is true that DeFi is preferred these days but before the infamous DeFi boom, CeFi was the go-to option for trading crypto.
Both DeFi and CeFi share the same end goal – to let users buy, sell, and trade crypto. However, the way in which they achieve this goal is quite different. In CeFi users trust a centralized exchange (CEX) to manage their assets and in DeFi, they trust a technology. Both sides have advantages and disadvantages of their own. But, there is a way to end this feud and bridge the gap between CeFi and DeFi. Enter CeDeFi (Centralized Decentralized Finance).
CeDeFi is a technology that brings together the best features of CeFi and DeFi. By doing this, it ensures that all the main functionalities of DeFi like token trading, swapping are provided to users with the flexibility and security of CeFi. But, where it really makes an impact is in the case of yield farming.
Yield Farming in DeFi
Yield farming is the fuel that powers the entire DeFi ecosystem. It is a way of providing liquidity to the users of DeFi platforms. Just like traditional banks receive liquidity from depositors, in DeFi there are liquidity providers who lock their crypto assets in liquidity pools. For doing so, they are incentivized by the platform with other crypto assets. The platform uses assets in liquidity pools to provide collateralized loans to borrowers for a rate of interest.
So if anyone has some crypto assets, instead of just HODling them, they can deposit them into yield farms and earn rewards for the same. But, the process is not as easy it seems. There are several risks involved. Beginners venturing into the world of crypto cannot imagine yield farming because it requires high-level technical knowledge.
Apart from this, users are on their own to find high-performing pools and DeFi platforms. If they invest in the wrong one, they are at risk of losing their assets. And, when they invest, they get special tokens called LP tokens. This means, yield farming on DeFi platforms requires the use of two different types of tokens. To add to all this, the high gas fees make it hard to harvest rewards.
But CeDeFi might have the solution to all these yield farming problems in DeFi.
Yield Farming in CeDeFi
As a hybrid solution, CeDeFi makes it possible to combine the best of DeFi and CeFi to create a low-risk, high returns, yield farming solution. On CeDeFi platforms, users can enjoy the flexibility of CeFi and the high APR (Annual Performance Rate) of DeFi. While these new platforms are transparent, they do retain some control with themselves. By doing this, they make the entire process convenient for users. For instance, let’s consider MoonFarm. MoonFarm is a CeDeFi aggregator built on the Binance Smart Chain (BSC).
One of the main goals of this platform is to optimize yield farming. Users who wish to yield farm can deposit their assets into the platform’s vaults and then relax. The platform takes it upon itself to find high-performing pools and DeFi platforms. This way, it maximizes profit and minimizes risk for its users. The platform also harvests rewards and deposits into users’ wallets.
The main advantage of such CedeFi platforms is that even beginners can yield farm, as most of the heavy lifting is done by the platform itself. Fiat to crypto conversion is also quite easy on these platforms. The entire process requires the use of just a single asset.
To better understand this, take a look at this comparison table:
|Ease of use||Beginners cannot easily yield farm on DeFi platforms||Beginners can yield farm on CeDeFi platforms|
|Risk vs reward||High rewards but involves higher risk||High rewards for a low-risk profile|
|Gas fees||High gas fee||Low gas fee|
|Type of wallet required||Non-custodial||Custodial|
|Process||A simple two-step process that requires only a single asset||A highly complicated process that involves two different types of assets and high technical knowledge|
|Interoperability||DeFi platforms usually just operate on a single chain||CeDeFi platforms support cross-chain functionalities|
A single glance at this table and you will realize that the process of the yield of farming becomes so much better on CeDeFi platforms. Even for those veterans who have higher technical knowledge, CeDeFi platforms like MoonFarm are a better option because of the reduced gas fee and simple procedure.
DeFi platforms and projects have gained immense popularity in recent times. So much so that people believe DeFi can take over traditional finance. Yes, it certainly has the capacity to do so. But, CeDeFi is even better. Contrary to popular belief, CeDeFi does not compete with DeFi but compliments it and makes it more flexible and user-friendly.
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