DeFi & CeFi
Why is DeFi getting so much attention?
The whole DeFi ecosystem is amazing. It enables everyone to do lending and borrowing while earning a yield. You’ll simply have to deposit your tokens into the pool then it’s done.
Transparency is also a big reason: DeFi runs on the blockchain and everyone can trade confidently on a trustless platform.
Can DeFi replace centralized exchanges?
It’s still early to say. DeFi requires more time to mature. The sizes of liquidity pools are still small. The liquidity is not deep enough to meet the huge demand of all traders. Plus, transaction costs are high, making trades inefficient.
If you go to Uniswap or similar trading desks, you will have to pay the gas fee or the transaction fee of around 30bps. And when you withdraw your capital, another fee will be charged. However, if you trade on a centralized exchange, you will only have to pay around 5–10 bps.
As you see, in terms of capital efficiency, you can get a huge advantage on a centralized exchange. Moreover, every project has their own protocols and rules.
For an average crypto trader, he/she may not have the time to go through all the guides and terms before making trades. DeFi is still not very user-friendly for retail traders.
How can CeFi & DeFi work together?
Many people prefer DeFi over CeFi, which is understandable as Bitcoin’s idea is all about decentralization. But the way I see it is that, CeFi plays a crucial role in facilitating DeFi development. And DeFi and CeFi should work closely together in the crypto market.
It’s nice that now DeFi enables liquidity farming for everyone by simple lending and borrowing. But in centralized exchanges, users can deploy the same amount of money to achieve more purposes, say trading futures, options, leveraged tokens, and even structured products.
With the same amount of money, users can enjoy better capital efficiency at centralized exchanges. Also, CeFi should be developing more new products to embrace the DeFi rise, connecting the two markets together. In addition to derivatives innovation, ACDX will also work on creative products to bridge DeFi and CeFi, such as accepting DeFi tokens as collaterals for trading derivatives. This saves traders time and costs from additional trades.