Centralized Finance Definition

Centralized finance, often shortened to CeFi, is a model where crypto services such as trading, lending, borrowing, and yield products are run by companies that sit in the middle of the transaction. These companies manage user accounts, keep custody of assets, and make operational decisions instead of running everything on open smart contracts. 

Platforms and services

In practice, most people meet CeFi through centralized exchanges, commonly called CEXs. These platforms let users buy, sell, and hold digital assets on an account maintained by the provider. Beyond spot trading, many CeFi providers offer access to crypto lending and borrowing, and sometimes pass through yield opportunities that originate on DeFi.)

How CeFi operates

A typical CeFi flow starts with opening an account and completing identity checks like KYC. Once registered, users deposit funds, and the platform takes custody, routes orders, and processes transfers inside its own systems. Fees on trading, withdrawals, or interest spreads are a core part of the business model. Because the company is the counterparty that holds assets and data, it also carries the main responsibility for security and compliance.

Bridge between TradFi and DeFi

CeFi acts as a bridge that connects bank money and on-chain assets. It provides familiar on-ramps and off-ramps: moving fiat into crypto, taking crypto back to fiat, and moving coins between an external wallet and the exchange account. This bridge lowers the barrier for people who want DeFi-style products but prefer a guided, hosted experience. 

User experience strengths

Many newcomers find DeFi interfaces and concepts tough to navigate. CeFi smooths that learning curve with customer support, familiar sign-up flows, and consolidated dashboards, while still exposing users to a broad menu of crypto assets and services.

Risks and trade-offs

Centralization brings trade-offs. Because the platform holds users’ funds and private keys, customers must trust the company’s solvency and controls. Returns can be lower than going directly to a DeFi protocol, since the platform charges fees for convenience. Rapid industry growth has sometimes outpaced clear regulation, which can leave gaps in consumer protections if a platform fails. The crypto maxim “not your keys, not your coins” captures this risk plainly.

Comparison with decentralized finance

Where CeFi relies on a company to coordinate accounts and custody, DeFi aims to push these roles into code and public blockchains. In DeFi, users typically hold their own keys and interact with smart contracts directly; in CeFi, the platform intermediates those actions and often packages similar outcomes in a simpler interface.

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