Primarily, the beginner crypto traders and investors don’t have any idea about CeFi, but we are sharing everything you must know about it and how it will impact your cryptocurrency journey!
CeFi – What Is It?
Cryptocurrency’s introduction is incomplete without the concept of decentralization because it allows transactions between people all around the world – it ensures seamless transactions without any middle person. For the most part, DeFi is the short-term for decentralized finance, and it’s known to take the concept the farthest.
It wouldn’t be wrong to say that DeFi is the ultimate ecosystem of the smart-contract apps, which allow the users to lend, trade, and save the cryptocurrency without needing any intermediary, such as a payment processor or bank.
Having said that, it is evident that DeFi is an emerging technology, and it is associated with a variety of risks. To begin with, navigating these DeFi protocols will require the users to have in-depth and advanced technical knowledge.
In addition, the users need to have the ability to lose their investment in case there is a bug in the code, user error, and malicious activities. For this purpose, you can depend on CeFi, which is the opposite technology.
As the name suggests, CeFi is known as centralized finance, and the primary idea is to create different investment opportunities related to cryptocurrency that allows the high-end benefits of decentralized finance with better convenience standards and security of your financial products. With the help of CeFi, the users will be able to earn higher interests on savings, pay for goods and services through a crypto debit card, borrow money, and do much more.
How Can You Earn Benefits With CeFi?
It is safe to say that CeFi creates the opportunity for earning great benefits and yields through cryptocurrency accounts, which tend to be similar to the conventional savings account that you’ve in banks, but they are highly likely to offer higher returns.
On the other hand, cryptocurrency deposits aren’t eligible for government-oriented insurance, such as SIPC and FDIC, unlike traditional savings accounts. For this reason, it is important to consider the associated risks.
In case you want more security, Coinbase is offering better security and guarantee on the dollars or USDCs that you deposit in the crypto account for CeFi lending. The primary concept includes holding the cryptocurrency on some platform from many that deliver a specific product. With Coinbase, the America-based customers can sign up to be included in the waitlist for starting the annual benefit of over 4% when you hold USDC.
Who Provides The Yields From Cryptocurrency?
When you purchase cryptocurrency through financial exchanges, some of them will be put to work and are lent to other firms. As a result, the borrowers will pay the interest rate for borrowing purposes to the centralized provider. Consequently, the centralized provider will pass on the interest to your account.
How Is CeFi Borrowing Connected To Lending & Saving?
The centralized finance platform makes it suitable for people to borrow money from cryptocurrency holdings, such as you would use conventional assets as a form of collateral. Providing the collateral is important when you have to apply for bank loans.
It wouldn’t be wrong to say that it’s the opposite side of lending with which the interests paid by the users for borrowing money is the way for you to earn yields for holding the cryptocurrency. As far as the CeFi loans are concerned, they hardly require any paperwork, such as Coinbase, which allows US customers to borrow over $100,000 without any credit checking and background screenings.
What Are The Risks Associated With CeFi?
1) Every CeFi product is different, and they can put the cryptocurrency in different places with varying risks. For this reason, you must conduct your research and see where your cryptocurrency will be used
2) The cryptocurrency deports are not eligible for a government-oriented insurance plan
3) Some providers are likely to lock the principal for a certain timeline
4) Not all coins are made equal, so don’t forget to conduct your research and predict the outcomes
The Bottom Line
After the soaring popularity of DeFi, it is evident that people needed a safer alternative. For this reason, CeFi is a better choice but make sure you are mindful about the insights to ensure you are getting the best yields.