CeFi stands for centralized finance, which looks to incorporate certain features of the traditional financial system into the decentralized finance ecosystem.
What does CeFi offer?
Crypto assets have been a speculative investment for most investors, and the concept of decentralization has been the theme of such technology. With time, there have been efforts to bring some of the features of the current banking system into the DeFi (Decentralized finance) space. In CeFi, cryptos holdings can earn interest, and these assets can also be borrowed and lent.¹
It should be noted that the CeFi structure in crypto is not eligible for the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC).¹
Example
Rex has accumulated $10 million worth of crypto assets in his wallet. He doesn't want to sell his holdings but he needs a loan for personal reasons. Since he does not want to sell his holdings, he can borrow against the crypto assets. Generally, the loan amount is capped to a certain percentage of the total value of his assets.
Source
- What is CeFi? Coinbase.
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