15 Reasons to Favor DeFi Over Crypto CeFi

What are the reasons to favor DeFi over crypto CeFi? There are quite a few good reasons that people favor DeFi over CeFi when it comes to using one of these platforms for crypto trading.

If you are not aware of it, here is an article that will enlighten you and make you more confident when you trade cryptocurrencies in the future.

The goals of both, Decentralized Finance or DeFi and Centralized Finance or CeFi happen to be the same – to make crypto trading more popular and boost up the trading volume.

However, one of the most significant reasons for the DeFi platforms to be more popular in comparison to the CeFi platforms is in the ways this specific ecosystem carries out its primary objectives. Check out DeFi vs Crypto CeFi.

Moreover, each of these ecosystems come with their characteristic pros and cons and therefore choosing one particular platform is based on the individual preferences and needs. Since these vary from one person to another, the choice varies as well.

15 Reasons to Favor DeFi Over Crypto CeFi

Reasons to Favor DeFi Over Crypto CeFi

Apart from these basic reasons, here are a few others that you should be aware of.

1. Intrusion-Free Trade

Though the DeFi services do not provide their users with customer support, it does allow them to make intrusion-free trades.

Investors and traders in this space can execute their respective strategies without requiring dealing with any intermediaries such as a central bank or a lawyer. CeFi, on the other hand, involves a single entity or a group of people in its process, which, however, makes it more secure.

2. Smart Contracts

One of the most significant reasons for preferring DeFi is that it is a particular financial service that uses smart contracts.

These are actually mechanized enforceable agreements. This expedites the services making the best use of the online blockchain technology.

3. Market Cap

Another significant aspect is that the market cap or value of the coins that use DeFi smart contracts have increased dramatically over the past couple of years.

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In fact, analysis reports show that the value of several major crypto coins has risen by as much as 3 to 4 times in a year, and a few have become even more valuable.

For example, the value of Synthetix Network Token has risen by more than 20-fold and that of Aave has increased by as much as 200 times.

With such an increase, the total market value has risen from 6.9 billion US Dollars to almost 15 billion US Dollars as of now.

4. Creates Maximum Disruption

DeFi typically creates maximum disruption since it is typically built on the most widely used Ethereum blockchain network.

This is quite reasonably considered to be the next step of revolutionizing financial technology which started with Bitcoin more than a decade ago.

5. Use Cases

The DeFi services also have significantly more use cases than CeFi. Some of its primary uses include borrowing and lending crypto to earn interest using specific platforms, betting on the result of events by using Augur, and creating as well as exchanging derivatives of assets of the real world.

Apart from that, it also allows taking part in a ‘no-loss’ lottery on PoolTogether and buying specific stablecoins that are tied to the value of a particular commodity or currency.

6. Maximize Returns

Apart from that, DeFi, which is also called ‘Lego money,’ allows you to maximize your returns by stacking dApps together.

7. Impact on Daily Lives

The DeFi platforms will also have a significant impact on the daily lives of people in the future when the dApps will be more than just niche.

For example, it may allow a user to buy a house or a piece of land using a DeFi platform on a mortgage agreement.

8. Tokenizing Assets

DeFi platforms will not only simplify the entire process of buying and selling properties but will also make it cheaper because it will not need the services of any banks or lawyers.

It will also be much safer than standard property loans because the deeds will be put up on a blockchain in a tokenized form as collateral. In the event of default in repayments, the chain will be broken and the deed will move to the lender automatically.

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9. Support of the Regulators

The primary reason that DeFi is more popular and has flourished so well is that the regulators have always been behind the curve.

The regulators now are able to protect people and the society from investing their money into unregulated market space.

In fact, the US Securities and Exchange Commission or SEC has already embraced DeFi and has even approved Arca, an Ethereum-based fund, for the first time.

10. Privacy and Trust

Everything on the DeFi platform is done mainly with an intention to preserve privacy and mutual trust.

This means that while lending or borrowing there will be no need for any legal requirements or to know the identity of the parties involved.

The lender will also not need to assess the ability of the borrower to repay the loan as it is done in traditional unsecured lending.

11. Mainstream Involvement

Another major reason for people favoring DeFi is that most of the mainstream players and financial institutions have got involved and have accepted DeFi.

They are participating in it in their own ways where several major banks have been trying out implementing blockchain technology into their payment systems to speed up the proceedings.

Also, the leading asset management and crypto investment funds such as Grayscale have taken DeFi sincerely as well.

12. COVID 19 Effects

In addition to that, COVID 19 has also played its part in escalating the popularity of DeFi.

The global rate of interest has fallen significantly in this climate but DeFi has the potential to offer much higher returns on investment than the traditional financial institutions.

13. Growth Opportunities

Most importantly, people are putting money into DeFi tokens because they do not want to miss out on their potential for explosive growth.

14. Potential Benefits

One of the most significant reasons for the preference of DeFi over CeFi by the people is that the potential benefits of the DeFi tokens are spread as widely as possible with proper checks and balances in place.

15. Advantages

Finally, take a look at the advantages of using the DeFi platforms and it will be much easier for you to know why people end up choosing Defi over CeFi.

  • Autonomy – These platforms ensure that you and no one else have the control over your assets since you have the possession of the private keys.
  • Affordability – These platforms are more affordable and also allow making cross border payments much faster.
  • Tradability – These platforms ensure more efficient trading since you do not have to make a high-value investment at one time.
  • Accessibility – The platforms are easy to access by anyone and everyone irrespective of their location in the world.
  • Interoperability – The DeFi apps or dApps protocols are designed for easy integration and complement each other.
  • Transparency – Since all data are placed on a blockchain and available publicly, the DeFi environment ensures more transparency and also helps in keeping the service providers impartial.
  • Participation – The true decentralization of these platforms allows worldwide participation with censorship resistance irrespective of the social status of the participants.
  • Immutability – Making the best use of the blockchain technology and infrastructure, these platforms ensure immutability of the smart contracts and allow contract automation for speedy settlement and low-cost transactions.
  • Risks – In these platforms the risks are minimal since there is no asymmetric information and the transparent protocols govern the personal interests.
  • Applications – The network effects are favored in DeFi since it combines diverse projects in layer 2 and layer 3 applications.
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All these advantages indicate that this particular financial ecosystem is decentralized in the true sense and hence is more liberalized than the other which is why it is more favored by the crypto traders and investors.

Conclusion

The society today at large is moving towards a new financial system. However, the most significant question is how this advance can be guided well so that the risks are minimized. This seems to be a major test in the couple of years to follow.