You can’t say crypto without mentioning Decentralised Finance (DeFi). Institutions are pouring billions of dollars into new and exciting ventures almost every week. What makes DeFi very exciting is that it is peer-to-peer – there is no governing central institution telling you what you can and can not do with your own assets. Where does MetaFi come in?
But there’s a lot to sort out before we reach the global DeFi adoption we all dream of. You have to be a crypto ninja to know where to start and even then DeFi can’t do everything that CeFi can do. For example, how do you buy the crypto needed to interact with DeFi protocols without passing through a centralised institution? And once you have made your returns on DeFi, how do you cash out?
Today we’ll be exploring the benefits and drawbacks of both CeFi and DeFi, and how combining them (MetaFi) may just be the right way forward.
CeFi – The Good and Bad
Centralised Finance (CeFi) is what we are all used to. It is what you get from your high street bank or insurance company. When using CeFi you expect a smooth and reliable experience, just step into a store and buy an item with their debit card, it only takes a single swipe. The money will be automatically deducted from the user’s bank account without the person themselves having to do any more than wave a card at a reader.
The customer also knows that his funds are safe, and if there is a problem, there is always somebody that can help fix the issue. When using a CeFi service you can also count on the fact that these companies are themselves highly regulated with strict monitoring.
However as your common sense tells you and the 2009 depression proves, putting all your blind trust in the financial institutions on Wall Street has some downsides. Firstly, there is the centralization risk. With CeFi your funds are effectively in the hands of the institutions. And, unfortunately, it is not uncommon for users to face power abuses by centralised crypto exchanges or banks. Freezing of funds, stopping withdrawals, and not allowing certain actions are common sights when the market is in turmoil and it means you can wave bye-bye to your hard earned savings.
On top of that, by relying on a middleman CeFi services generally come with higher costs and fees and take a lot more time.
DeFi – Ups and Downs
DeFi, on the other hand, excels at allowing users to earn without having to pass through a middleman. Thanks to the peer-to-peer nature of the blockchain, crypto holders can make use of DeFi protocols with no third parties involved. Or in other words, DeFi cuts out the stereotypical Wall Street Fat Cat and gives users back the control of their funds.
In addition to this, DeFi offers a rich ecosystem of products and services, from DEX’s to yield deposits and staking pools, providing endless possibilities. Users of DeFi services tend to earn a lot more than their CeFi counterparts.
However, as with everything else, DeFi also has drawbacks. DeFi protocols are always very complicated. It’s unrealistic to expect even experienced crypto users to understand and properly use products such as a yield vault. Imagine having to read Facebook’s terms of use every time you wanted to use Facebook, to know what you are letting yourself in for. It’s just not going to happen for most people.
And if you don’t know what you are doing, and there is nobody to back you up if you make a mistake, then DeFi clearly represents a much higher risk than the CeFi governance approach. A phrase you hear often in crypto is ‘be your own bank’. But if we are honest with ourselves, do we really want to be our own bank, with everything that entails? Imagine if you forget the key to the bank (in crypto this is usually a key phrase) and you are locked out forever. In DeFi everything is in your own hands, including the responsibility of storing your funds.
Not that many people, or businesses for that matter, are prepared to take that risk. Which means that the huge benefits of DeFi, especially the opportunity to earn on dormant funds, is being wasted.
MetaFi – The Best of Both Worlds
DeFi and CeFi both have their pluses and minuses which appear to be almost the polar opposites of each other. What if we just combine the two inside one solution so that the pluses and minuses can balance out? A so-called “MetaFi” ecosystem, which would allow them to cover each other’s weak spots and reach their full potential.
CeFi excels at its accessibility and can help create a single access point for all of the DeFi ecosystems, allowing for full blockchain interconnectivity. A CeFi infrastructure would also better protect users’ funds from scams, hacks, and loss of seed phrases, making the whole experience less daunting. On the other hand, DeFi could bring to the table a certain degree of decentralisation and a rich ecosystem of services, as well as lower fees and faster services.
Bridging the two systems brings the best out of each other. MetaFi is the best bet for crypto adoption, making digital assets more accessible, efficient, and easier to use for businesses and individuals alike.
