Is DeFi Trying to Grow at CeFi’s expense?

By November 23, 2022DeFi
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The crypto industry has a well-deserved reputation for change in the blink of an eye. This month, in just a few weeks, we have seen the centralized cryptocurrency empire collapse before our very eyes.

it started with FTX’s spectacular collapseand the shock wave creates a ripple effect, some other major playersBlockFi in particular, and possibly Genesis and Gemini, have all imploded as the crypto community rushed to withdraw funds from centralized exchanges to safe havens.

The turmoil has caused the price of Bitcoin and virtually all other crypto assets to drop by more than 10%. However, while it may feel like the apocalypse for the current cryptocurrency industry, a step back reveals that it could play out differently than the initial panic suggested.

One thing all these major cryptocurrency players have in common is centralization. So-called centralized finance (CeFi) may look similar to decentralized finance (DeFi), but they are actually very different beasts. DeFi is all about self-sovereignty, but CeFi refers to projects in the crypto space that hold authority over their users’ assets, or businesses that actually make a profit.

If you leave your funds on the CeFi platform, you can’t really control them. Instead, it leaves them in the hands of the people who own the platform, and they are free to use them in any way they see fit.

The liquidity issues that caused FTX to file for bankruptcy can be attributed to user asset management, authority, and governance. Centralized means that users are manipulated. In the alternative world of DeFi, that can’t happen because there is no central authority to run the show from behind the curtain. Asset ownership remains firmly in the user’s hands. DeFi alternatives are therefore trustless and immune to the greed and recklessness of centralized institutions.

This important difference between CeFi and DeFi has become too obvious in the last few days. Major tokens plunged to new annual lows as a result of the turmoil caused by FTX, but interest in tokens tied to DeFi platforms is surging, according to Delphi Digital. DEX Tokens Significantly Outperform CEX Tokens – The DEX basket of tokens increased by +24% against the equivalent CEX basket which decreased by -2% since November 11th.

Decentralized exchanges are benefiting from an influx of safety-seeking crypto users as centralized exchanges once again prove unreliable.

Evidence of this trend can be found in Polkadot, a blockchain project that has long advocated the benefits of decentralization. New data from Dot Insights, an initiative that tracks the blockchain ecosystem of Polkadot and Kusama, suggests that Polkadot witnessed a sharp rise in recent user activity.

For example, Polkadot’s number of new accounts increased by over 900% in November. At the same time, the number of active accounts jumped over 300% from about 1,100 to 4,516 at the last count. Cryptocurrency users are clearly looking for a safe haven for their funds and nothing is safer than self-management. As such, there is growing interest in decentralized platforms.

Polkadot’s creator, Gavin Wood, has long been one of the most vocal proponents of decentralized finance and self-sovereignty, so Polkadot is a natural destination. Binance founder Changpeng ‘CZ’ Zhao has attacked FTX’s Sam Bankman-Fried on his Twitter, calling him a psychopath and a bad player, but Wood said the problem is the individual in question. Instead, I simply observed that it was the whole concept of centralization. Allowing such individuals to thrive.

CZ on SBF “I can’t protect anyone” [from] Frankly, people who are very good at lying and very good at pretending they aren’t are bad players. Protection comes through decentralization. That’s the point of web3 and trustless technology. @cz_binance

It’s too early to tell if this episode marks the end of centralized platforms for cryptocurrencies, but recent trends over the past few days suggest a clear and conscious shift is on the horizon. Many people needed a lot of persuasion to convince themselves of the merits of cryptocurrencies in the first place, but now those same people are beginning to understand the true purpose of their inroads. By the way. With this, his much-needed departure from CeFi into the world of DeFi and true self-sovereignty is finally gaining momentum. Is DeFi Trying to Grow at CeFi’s expense?

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