What Is True DeFi And Why Do We Not Use It Currently?

Decentralized finance (DeFi) is the most exciting and powerful application of distributed ledger technology. Through the power of blockchain technology, it promises an autonomous financial ecosystem that’s outside the control of individuals, entities, and regulators.

DeFi is growing fast. Today, hundreds of projects exist, and many more are in the works. But, despite the obvious advantages of DeFi, hundreds of thousands of crypto users still use centralized platforms that are managed or controlled by a central entity.

Why?

Decentralized Finance vs. Centralized Finance

Centralized finance (CeFi) is the traditional market structure where centralized entities control the access and movement of funds. It is dominated by centralized entities (companies, governments, organizations), which define and control the system. These entities can exercise extreme control and choose who they work with. They can censor or ban and can also be censored or banned.

In CeFi, centralized firms act as middlemen. This allows them to exercise significant control over the user’s funds. Banks are a perfect example.

“If you define centralized,” says Warren Whitlock, Founder and CEO of Stirling, “everything has to go through one hub. If I want to send you money, the very simplest of financial transactions, I send it to the bank, and the bank sends it to you…If you have a bank and I have a bank, then they have to get along.”

In the crypto space, centralized finance entities may offer similar services to banks. But as Wendy O, SoCal Crypto Meetup Host and Youtube Crypto Educator, says, “they’re not really banks, because there is no consumer protection. They’re not operated by these very strict entities that have to apply for licenses and conform to regulation.”

DeFi, at least true DeFi, is the complete opposite of CeFi. It introduces a peer-to-peer approach to finance that brings more power to the hands of the user.

In DeFi, there is no central authority to control and coordinate matters, or to control access to funds. Therefore, it is more resistant to censorship and regulatory action than CeFi. Users also have control of their funds. And since DeFi transactions take place on blockchains, DeFi is transparent.

“When we talk about DeFi, we’re looking at protocols, the customers, clients, having control over their funds to an extent… DeFi is like you’re your own bank to an extent,” says Wendy O.

“When we’re using blockchain technology, everything’s on-chain; for the most part, you can see it unless there’s a cash deal out of the bag, or, you know, sometimes there’s OTC deals that are done.”

But despite these benefits, many people continue to choose centralized protocols.

CeFi’s Appeal

Centralized finance appeals to the regular person…