CeFi vs DeFi
Centralized vs decentralized finance — advantages, downsides and 2022 disasters.
CeFi (Centralized Finance) and DeFi (Decentralized Finance) are two different approaches to crypto financial services.
CeFi:
•Companies manage funds (Binance, Celsius, BlockFi)
•Easier for beginners — signup, KYC, deposit
•Regulated (or should be)
•User doesn't control private keys
DeFi:
•Smart contracts control everything — no intermediaries
•Non-custodial — you keep the keys
•Permissionless — no KYC, no bank
•Transparent — everything on blockchain
•More complex to use
2022 — CeFi Catastrophe:
•Celsius ($12 billion, July 2022) — froze withdrawals, bankruptcy
•Voyager Digital — bankruptcy, deposits trapped
•BlockFi — bankruptcy after FTX collapse
•FTX ($32 billion, Nov 2022) — Sam Bankman-Fried in prison
•3 Arrows Capital — hedge fund, bankruptcy
Lesson:
•"Not your keys, not your coins"
•CeFi high yield = high counterparty risk
•DeFi smart contract risk exists, but no "CEO runs with money"
Wherever possible: non-custodial DeFi > CeFi custody.