CeFi vs DeFi — Which one suits better for your interest?
Dear ICONFi users,
Since when ICONFi started the business, the ICONFi CS team has received this question many times: Is ICONFi a DeFi platform? The quick answer is CeFi, but please keep reading this posting.
The digital asset space continues to mature, investors are increasingly being offered new and innovative financial instruments to grow their cryptocurrency portfolios. These decentralized ledger offerings are broadly categorized into two groups — Centralized Finance (CeFi) and Decentralized Finance (DeFi).
Centralized Finance, or CeFi, is analogous to the traditional finance industry. People provide funds to a centralized entity in exchange for fixed or variable incentives. Banks and credit unions are examples of centralized entities in the fiat space. These entities use your funds to earn income and provide you with a fixed or variable incentive in exchange for providing your funds.
CeFi is similar in that you hold your digital assets with a centralized entity who offers you a yield as a reward for depositing your funds. Notable examples of CeFi organizations include Celsious Network, BlockFi, and ICONFi.
In general CeFi platforms like ICONFi offers much better yield rates than conventional central Banks while lower than DeFi platforms. Considering the high volatility in the crypto market, CeFi can be a great alternative to direct trading especially when about 90% of people lose their money on crypto trading.
Decentralized Finance, or DeFi, is a step closer towards the disintermediation concept of blockchain technology. Instead of sending your funds to a centralized custodian, you maintain custody over your digital assets. This means that you are completely responsible for managing your private keys and wallets.
The benefit of DeFi is that you maintain custody over your assets and you can skip Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements. However, if you lose access to your private keys and wallets, you have no way of recovering your funds, as there is no centralized body to assist you.
But the yield rates for DeFi platforms are normally exaggerated compared to what it really offers. High yield rates come largely from “Platform Tokens” and normally it naturally assumes that the prices of DeFi tokens only go up while the opposite holds true in many cases.
In addition, no one takes responsibility for any issue caused on DeFi Platforms. In May 2021 alone, BurgerSwap was hit with a US$7.2 million Flash Loan attack, bEarn Fi had US$11 million stolen and Spartan Protocol lost more than US$30 million due to a flawed liquidity share calculation.
Deciding between CeFi and DeFi
In fact, there is no superior option between CeFi and Defi. Both platforms have their advantages and disadvantages. Like any investment, you must weigh these pros and cons according to your appetite for risk.
CeFi platforms offer more conservative interest rates, as they are based on traditional financial investment strategies. The rates offered by CeFi providers are often higher than those offered by the banking industry due to decreased operating expenses and the need for a more competitive revenue model.
DeFi platforms offer very high rates, though the sustainability of these rates and the value of the underlying assets is subject to high levels of volatility. DeFi token prices can plummet due to unexpected reasons and once it happens, the yield rates can drop significantly. Moreover, many DeFi yield “Farmers” set their DeFi tokens as collateral, making the TVL (Total Value Locked) lower than actual collateral raito — this might be another form of CDO (Collateralized Debt Obligation), that blew off the global finance system in 2008. So when there is a drop in crypto prices, DeFi platforms get the hits harder than others as the value of posted collateral collapses. This is what we saw on May 19th 2021 — at least a part of the reasons of the brutal sells on Bitcoin and Ethereum.
ICONFi — CeFi with a hint of DeFi
Although ICONFi fits into the category of CeFi, users can enjoy our offering of automatic DeFi rewards.
With ICONFi, you can earn up to 11% APR on BTC, ETH, USDT and USDC through Flexible and Fixed Earn deposits. We compound interest six times daily, the highest frequency in the market, so you can literally see your crypto portfolio grow before your eyes. Since we compound interest so frequently, your actual yield interest rate is higher than that of our listed rates.
We also offer staking for ICON (ICX) where we pass on 100% of the earnings from the ICON network to users. On top of ICX rewards, users also earn Balanced (BALN) and Open Money Market (OMM) DeFi tokens on their staked ICX. Our team is working hard at expanding ICONFi’s DeFi token offerings, so you have even more exciting assets to look forward to.
The ICONFi mobile application takes away the stress and risk of managing your own private keys and wallet. This allows you to grow your crypto and delve into the space of DeFi without needing to worry about misplacing your private key. Plus, if you ever lose access to your ICONFi account, you can contact our support team and receive a response in 24 hours.
ICONFi is a digital asset savings platform that provides simple & intuitive earn products so that anyone can easily multiply crypto assets. ICONFi aims to simplify the complicated processes often associated with crypto assets and offers a sleek, straightforward user interface which supports saving, staking and airdrop activities at the palm of your hand.