Centralized vs Decentralized Finance: EGG vs Coinbase vs Binance

DeFi (Decentralized Finance) and CeFi (Centralized Finance) are types of cryptocurrency exchanges, which is an online market for users to purchase, sell, and trade cryptocurrency. Some exchanges also allow their users to gain interest in the cryptocurrency that is held within the exchange account. When choosing a platform, it is best to take into account its accessibility, security, fees, liquidity, coins offered, educational tools, and storage. DeFi and CeFi are similar in the services they provide, but they also have significant differences, particularly regarding centralization, permission, and trust. 

CeFi vs DeFi

Key Takeaway

  • DeFi aims to be more community-owned, while CeFi is owned by a single centralized entity.
  • In CeFi, the exchanges are responsible for the security of the users’ funds, while in DeFi, there are smart contracts that help conduct transactions instead of intermediaries.
  • You would need to trust your assets to the centralized exchange in CeFi, but in the case of DeFi, you are in control of your funds. 
  •  EGG.fi is a DeFi platform, while Binance and Coinbase are examples of CeFi platforms.

What is DeFi?: Decentralized Finance

A blockchain-based form of finance that is not reliant on central financial intermediaries to offer its services is referred to as DeFi. Instead, it utilizes smart contracts (automated code running on a blockchain that cannot be changed). In other words, the markets are always open, and there are no centralized authorities to restrict payments or deny your access to anything. The blockchain processes the transactions that happen in smart contracts without third parties. Now, what is a DeFi platform?

What is DeFi?: Decentralized Finance

DeFi platforms have many functions, such as lending or borrowing funds, yield farming, using derivatives to speculate on price movements, trading cryptocurrencies, earning interest, and much more. Besides that, DeFi enables you to have control and visibility over your funds, as well as exposure to global markets and alternative options for your local cryptocurrency or banking. An essential aspect of DeFi is having a strong internet connection.

EGG as a Decentralized Finance Platform (DeFi)

EGG.fi is a fully decentralized platform, and since it utilizes non-custodial (light) wallets, it does not hold the users’ private keys. Light wallets enable users to have complete control over their funds and are not only more secure but also censorship-resistant. When you implement a transaction, your wallet processes the transaction with the private key and creates a digital signature. Not holding the users’ private keys means that they are the sole owners of that data. In other words, the data cannot be accessed by third parties, including the EGG platform.

What is CeFi?: Centralized Finance

In the case of CeFi, such services are run like centralized crypto exchanges by centralized entities. Most CeFi service providers follow the rules set down by the local governments in the place they operate. Therefore, according to these regulations, centralized financial institutions (like exchanges or trading platforms) are required to implement Anti Money Laundering (AML) and Know Your Customer (KYC) practices. So users have to sign up and submit these, which is not required for DeFi. Also, unlike with DeFi, where your funds are usually stored in non-custodial wallets, with CeFi, they are put in custodial wallets (which hold users’ private keys) of the centralized companies and institutions. Another difference is that with centralized exchanges, you have no choice but to trust them with your assets, while for DeFi, there is no need for it.

what-is-cefi-centralized-finance

Coinbase as a Centralized Finance

Coinbase is a centralized exchange platform based in the United States. It is geared towards beginners and has a simple interface but limited transaction types. Since it is a CeFi platform, Coinbase holds its users’ private keys, secures their funds with a password, device confirmation, and 2-factor authentication. However, since the platform generates private keys, your keys will also be available to the hacker if it gets hacked. Hackers or phishing scams often target custodial wallets, which are often used by CeFi platforms.

Binance as a Centralized Finance

Binance is also a CeFi platform, but unlike Coinbase, it is more geared towards advanced users and has many currency trading options. Some of its security features include address whitelisting and the ability to restrict device access. Additionally, the Federal Deposit Insurance Corporation (FDIC) ensures all of Binance’s USD balances up to $250.000. These balances are held in custodial bank accounts.

Final Thoughts

To reiterate, Centralized Finance combines the yield advantages of DeFi with the security and convenience of traditional financial services. On the other hand, Decentralized Finance, as the name suggests, aims to be owned by the community. In CeFi, users need to trust their assets to centralized exchanges, and their funds are usually stored in custodial wallets owned by that platform. On the other hand, in DeFi, you are the owner of your funds, which are stored in non-custodial wallets. Our EGG platform is an example of a DeFi platform, while Binance and Coinbase are CeFi platforms. 

Dictionary

Private keys -Secret numbers stored in the users’ digital wallets that allow users access to their cryptocurrencies.

Public keys – has a corresponding private key, and can be shared with others

Anti-Money Laundering – a collection of procedures and regulatory rules in place to detect and prevent profit from illegal activities such as evading tax and manipulating markets.