Centralized Finance (CeFi) is a term used to refer to an exchange or the concept of having a centralized authority manage the funds in an ecosystem.  

As it relates to crypto, CeFi offers access to yield benefits that can be found in the DeFi ecosystem while also offering the ease of use and security that is found in the traditional financial system.

Even though many in the crypto ecosystem value what DeFi has to offer, it can be difficult to manage and comes with a higher level of risk that some investors are not comfortable taking.

With CeFi, users can borrow money, buy or sell crypto, and access services like crypto debit cards that allow them to make purchases with their crypto and earn rewards at the same time.

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Yield Earning Opportunities with CeFi

The mix of crypto-based accounts with centralized organizations offers yield opportunities that function like a traditional savings account but with significantly better yield. The most common method people currently interact with CeFi is by lending crypto assets on centralized exchanges like Coinbase or Binance, or through various other centralized applications like Celsius or BlockFi.

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Borrowing on CeFi Exchanges

As with traditional financial services, on top of lending CeFi also offers access to borrowing against crypto assets in the same way that traditional assets are used as collateral for a bank loan.

It's basically the flip side of the lending sector, where the interest users pay to borrow funds is the source of yield for those who are holding and lending their funds on CeFi.

The benefits of taking CeFi loans vs. traditional bank loans include the limited amount of paperwork required and a lower barrier to entry due to the elimination of things like credit history checks.

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The Risks of CeFi

• Each CeFi provider is different in how they operate and put deposited funds to use. It's important that investors do their due diligence before using any service so that they fully understand all the risks involved.

• Crypto deposits aren't eligible for government-backed insurance if the CeFi exchange is insolvent

• Lock-up periods are sometimes required

• It's important to carefully read through and verify the terms of service and method of yield payment prior to depositing.

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