If you have ever thought of investing in crypto, you have most likely come across the term DeFi. DeFi is short for “Decentralized Finance.” One of crypto’s most important assets is that it is decentralized, meaning it does not have a central location where it is stored. So let’s see what is CeDeFi.
DeFi is very important to the crypto community because it makes crypto very unique from other investing strategies and currencies. On the other hand, to understand DeFi first, we must understand what CeFi is.
What is CeFi?
DeFi, as unique and as good as it sounds, has flaws. Decentralizing currencies allows investors and holders of crypto to sell, give, and buy crypto to one another, not through a central “bank”. Navigating DeFi requires a lot of knowledge, especially technical knowledge, since its such advanced and emerging technology.
This knowledge is not a “should have” but a “must,” since investors could possibly lose their crypto due to bugs or malfunctions in the system. In short, the system should not be flawed.
The general idea behind CeFi is to eliminate these risks by “centralizing” this system. So it gives and provides the security of traditional centralized financial banks to the crypto market. With it, you can borrow money, sell and buy, and also use crypto debit cards.
What Does Earning Yield in CeFi Mean?
Just like traditional banks, some crypto users can now sign up for a CeFi-based crypto account, for example, CoinBase. These users can now save up, borrow, sell, and buy crypto and yield a percentage of around 4% annually for just holding USD Coin.
In general, the crypto that you hold will be used to be lent out to others and passed around in the same manner that other holders’ crypto is lent to you for personal uses. Then, just like traditional banks, those who have borrowed crypto will pay an interest rate, which then leads to building up to around a 4% yield for investors.
What is CeDeFi?
We now understand and know that DeFi stands for Decentralized Finance and CeFi for Centralized Finance. We went through their main assets and flaws, and now we can understand what CeDeFi means.
See, CeDeFi, is a term originated by the CEO of Binance. As you’ve probably guessed, it means “Centralized Decentralized Finance.” It is meant to be a mix between the two so we can find a middle ground with some little flaws.
CeDeFi allows users to get a feel of DeFi without actually paying high transaction fees. This allows users and encourages them to play with different DeFi protocols, for example, Decentralized Exchanges, Lending, yield farming tools, and more.
Smart contracts by teams can be deployed with only a fraction of the cost compared to the price they would have to pay on the Ethereum Blockchain.
The Binance Smart Chain is a good example of CeDeFi. The Binance smart chain is a fork of Ethereum, meaning it uses the same smart contracts as Ethereum does. This makes it possible for the Binance smart chain to either re-use or fork all the services that the Ethereum blockchain provides.
What Is Binance Smart Chain?
The Binance smart chain is a very clever solution and upgrades the previous Binance Chain. It introduces, in a way, programmability to the Binance chain. Its design is to be compatible with the Ethereum blockchain, and it does that very well.
Ethereum is known for being the most practical place for developing smart contracts. BSC, by being compatible with Ethereum, uses the same smart contracts as Ethereum. This compatibility allows BSC users to have access to dApps, different tools, and ecosystem components of Ethereum.
It uses a 21 validator system on the Proof of Stake Authority, allowing users to have lower fees and reduced block times. Although this system gives lower fees and reduces block times, it does this at the cost of decentralization and security of the network.
A user cannot just start validating blocks just as they would in Bitcoin or Ethereum. Even if a user joined without permission and started validating blocks, they wouldn’t be able to do so for a very long time on consumer hardware because the state in BSC is much higher than in Ethereum.
The block time in BSC was reduced to 3 seconds, compared to Ethereum (ETH), where it was 13 seconds. This allows for higher transaction volumes through goods and faster confirmation time with the cost of having to store more data.
In the Ethereum blockchain, for example, this strategy would not work as there would not be enough time to validate each block across the network. In BSC, however, this would not be a problem since there are enough validators that take turns validating each block.
The Block Gas Limit in Binance Smart Chain
The block gas limit is a parameter that decides how many transactions fit into one block. In the Ethereum blockchain, for example, this would be a problem to deal with. If the number of transactions were raised, that would make the network unstable for users at home since their hardware would not be able to take it.
In BSC, however, this would not be a problem. The Binance Smart Chain, with its 21 validators who would use advanced machines and hardware provided by Binance would be able to raise and lower the gas limit to whatever level is necessary without it being much of a problem or a problem at all.
Why is CeDeFi important?
The main advantages of CeDeFi are lower fees, better security, speed, lower cost, and more. Other advantages include the fact that CeDeFi gives centralized security without a centralized trading experience.
On the other hand, it is also very accessible. Anyone with an Ethereum wallet can access BSC and CeDeFi easily. It is made accessible for beginners as well making the entry simpler and and removing some entry barriers and letting beginners explore easily with high security and a decentralized trading experience.
Takeaways
- One of crypto’s most important assets is that it is decentralized, meaning it does not have a central location where it is stored.
- Navigating DeFi requires a lot of knowledge, especially technical knowledge, since it is such an advanced and emerging technology.
- Just like traditional banks, some crypto users can now sign up for a CeFi-based crypto account, for example, CoinBase.
- CeDeFi is a term originated by the CEO of Binance.
- Smart contracts by teams can be deployed with only a fraction of the cost compared to the price they would have to pay on the Ethereum Blockchain.
- Binance smart chain is a fork of Ethereum, meaning it uses the same smart contracts as Ethereum does.
- The main advantages of CeDeFi are lower fees, better security, speed, lower cost, and more.
