Centralized finance (CeFi) will continue to be an important avenue to drive the adoption of decentralized financial services (DeFi) in the future, but regulatory considerations remain an important part of the process.
This was a key topic that came up during a panel titled “How to do CeFi right – the balance between TradFi and DeFi?” at Blockchain Week in Paris. A group of industry experts weighed in on the current state of CeFi and DeFi, their relationship, and their importance to the future of the space.
Eric Turner, Messari’s vice president of market intelligence, highlighted the fundamental difference between the two terms, which have overlapped to some degree in recent years, given the relationship between centralized exchanges and decentralized platforms:
“If we think about what we think of as CeFi today, it’s centralized exchanges. It’s people offering custody and lending services. But if it’s between DeFi and CeFi, you know, all of those services can be built in different ways.”
Turner also highlighted CeFi’s role as the main on-ramp for the “next billion users” in terms of a fiat entry mechanism, as well as a trusted pathway for larger professional investors to enter the crypto space.
Joaquín Sastre, managing director of BitGo LatAm & EMEA, said that the institution-focused wallet platform sees a key difference between the two categories:
“What really matters here, to differentiate between CeFi and DeFi from our point of view, is really access and storage.”
Tailor argues that Adoption of DeFi protocols and platforms will be a natural progression as CeFi continues to provide regulators with a means to offer some institutions protection through legal controls and parameters.
Ian McAfee, Co-Founder and CEO of Shift Markets, highlighted the importance of what CeFi platforms and DeFi protocols offer and suggested that the terminology itself serves more to describe and capture what the technology could do:
“Finance will only use blockchain 20 years from now, right? So these words are just going to evaporate.”
Charlie Meraud, CEO of cryptocurrency market maker Woorton, believes the two are increasingly inextricably linked, leaving behind the original attractions of DeFi, which offered interest rates on liquidity pools that were better than anywhere else:
“We’re going to end up in a world where you take credit risk with TradFi, or technology risk with DeFi. You’re going to have to trade between the two and make them live in the same world.”
According to McAfee, CeFi also continues to be a key driver for cryptocurrency adoption, stating that centralized institutions are still “awakening cryptocurrency” as an asset class. Helping banks and brokers largely involves introducing them to CeFi services, such as centralized exchanges:
“You give it to them in a format they’re familiar with. The first thing people do is buy Bitcoin or the first thing they give them to try out this new technology.”
Sastre also believes that asset tokenization is another major adoption driver serving both CeFi and DeFi players. He said that the tokenization of financial and real estate assets are “no-brains” that will be boosted by broader use of CeFi in particular:
“It gives you access to the asset so it can be traded around the world 24/7. It’s a huge advantage for financial markets and also for regular people on the street.”
As CeFi continues to connect to DeFi protocols to serve both retail and institutional users, Regulation remains one of the most important considerations for organizations and companies looking to break into the cryptocurrency ecosystem through some form of exposure.
For BitGo’s Sastre, regulation is an inevitable and necessary component, given the fallout from the collapse of major CeFi players like FTX last year:
“These things can be avoided if there is a segregation of duties, if there are qualified and regulated trust custodians that own the assets and give the verified veracity of the reserves.”
Turner also stressed the importance of the cryptocurrency industry taking a more active role in conducting conversations with regulators and government agencies to help the not-so-crypto-savvy better understand the ins and outs of the ecosystem:
“If we can regulate where the on-ramps and off-ramps are, I think that’s incredibly powerful in allowing us to build everything else in this industry.”
Regulation was a particularly hot topic given that US cryptocurrency exchange Coinbase received a Wells Notice from the US SEC regarding its staking services on March 22. This is a prime example of a CeFi player offering DeFi-based services to its users.
Cointelegraph is present at Paris Blockchain Week, providing live updates on key presentations, panels, and interviews throughout the event.
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