In this post we are going to learn the following-

• what is DeFi?
• what is CeFi?
• difference between DeFi & CeFi

DeFi & CeFi

Let us start understanding DeFi & CeFi by taking an example of our upper body with its different parts like neck, arms, etc, they all carry out different functions, likewise our body there is another body that we often come in contact with but don't give that much attention. This body is called Money. The whole system of financial services revolves around money. Let us understand it like this:

So let's say you want to earn interest on your money or get a mortgage you will go to a bank, if you want to buy insurance then you will go to an insurance company, if you want to buy stocks then you will go to a stock broker. There are many companies available for these and other financial services. All the companies that are part of traditional finance and they are part of different money services with Money being at the center body.

What is DeFi?

DeFi or Decentralized Finance is the system in which we can carry out all the financial services like banking, borrowing, trading, or lending without the involvement of a third party like banks, stock brokers, etc. DeFi intends to get complete control of our assets, complete custody of our assets, and get more returns on our assets. In DeFi the transactions are done using cryptocurrencies with different protocols like Aave, Compound, and Uniswap.

What do I mean by more returns?

Let's take an example, we keep money in the bank that gives us interest. Suppose the interest rate is 1%, and the bank offers loans to other people at the rate of 4%. So the bank gives a loan at 4% interest to other people with your money and you only get 1% of it. With DeFi we will be getting a total of 4% interest on our money. This is one of the main advantages of DeFi over the traditional financial system.

Now let us learn about CeFi.

What is CeFi?

CeFi or Centralized Finance is somewhat the same as DeFi with just a little difference where instead of running protocols, companies are present that provide financial services for our digital cryptocurrencies. It comes somewhere in between of DeFi and the traditional finance system. Some major companies in this space are Binance, Coinbase, Celsius, etc.

Difference between DeFi & CeFi

The primary difference between DeFi and CeFi includes the presence of companies in CeFi whereas in DeFi there are mainly protocols running on blockchains like Ethereum on their own.

Thank you for reading this post 🙏 If you like this post and found it useful then give it a thumbs up 👍 and follow me ➕ for more such content on Web3.