I started my new series about Defi. I think it is the future of finance. Whether it will replace the current system or integrate it to make it a better place, we want to know what Defi really is and how it works. Of course, these will be multiple parts and they are short to read!
This part 1 article can help you to easily distinguish between Cefi and Defi. Well, I hope it does.
What is Defi?
It is a subset of blockchain technology and is short for decentralized finance. Being decentralized means there is no third party involves but pure peer-to-peer transactions.
The Cefi-Defi spectrum
There are 3 categories of digital finance: Cefi, Hybrid, Defi.
Ask 3 questions
There are 3 control questions to help you out and distinguish between those 3 categories.
1) Can a user control their own financial assets?
2) Can someone overrule a transaction execution beyond a user’s control?
3) Can someone use a protocol to overrule a transaction execution beyond a user’s control?
1) Can the user control their own financial assets?
If a user cannot control their own financial assets, it is automatically Cefi. Since the user has not custodial power of their own assets, there is a third party to handle assets’ transactions.
2) Can someone overrule a transaction execution beyond a user’s control?
If someone can overrule transaction execution, it is likely that there is a Cefi intermediary to settle potential disputes.
3) Can someone use a protocol to overrule a transaction execution beyond a user’s control?
If someone designed a protocol to overrule transaction execution, it is likely that there is a Cefi component integrate into the Defi system.
Let’s do an example
Stablecoin - USDT
1) Can a user control their own financial assets?
Yes, the user can store USDT in the wallet.
2) Can someone overrule a transaction execution beyond a user’s control?
No, there is no intermediate party to reverse the transaction.
3) Can someone use a protocol to overrule a transaction execution beyond a user’s control?
Yes, the protocol may automatically burn coins to stay around $1 that users may not know when it will happen.
Therefore, USDT is a hybrid.
In conclusion
You can play around with the rules and see what you find out. You may surprise that many so-called Defi is actually a hybrid.
P.S.: I clean up my previous articles and make categories for you to reference.
Photo by Marco Nenzi on Unsplash
Related articles to reference here ⬇️⬇️:
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Stablecoin
Stablecoin is Not So Stable
Stablecoin: We Ever Need Them More Than CBDCs
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CBDC
CBDC: Stablecoin 2.0 or Stablecoin Killer
Chinese CBDC: the Ultimate Financial Weapon or Just another Copycat
CBDC vs Cryptocurrency: the War of Privacy
Game of Three Kingdoms: CBDC vs. Cryptocurrency vs. TechCoin
Why Crypto Got So Political Suddenly: The Beginning Tale of Government Crypto Surveillance Program
CBDC's Cross Border Payments System: Worse than Crypto
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Defi
DeFi Swap: Great Returns come with Great Cost
Defi: A Rainbow 5-Layers Cake
Robot Sucks: How Lousy Jobs AMMs Did to Ruin the DeFi
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Inflation
Inflation vs. Bitcoin: How Speculation to Hedge Inflation has Failed in Short Term but may Create Opportunity in Long Term
Hypothetically, What if the Fed Fails to Control Inflation, Will Crypto Save Us?!
Currency Debasement: Cryptocurrency Inflation Hedge Hypothesis Still Hold
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Gold
Gold vs. Bitcoin: Digital Twin or Enemy
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Volatility
Volatility of Bitcoin: Threat or Opportunity
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Recent News
Lesson Learn from Robinhood IPO: Era of Crypto Exchange Comes to an End or a New Beginning?
City Coins: Are they the Era of New Coins?
The End of Era for Crypto Exchange Platform?!
Crypto Hacking: How Did it Really Happen?
Jack Dorsey’s Ambitious: Twitter wants to Become a Place of Freedom of Speech
Legendary Hacker: the White Hat into the Rescue
The Future of Cardano: as Clear or as Uncleared?
Patent the Blockchain: the Nonsense Action Shows a Worry from Big Tech Companies
Forget about Trade War: New Era of the International Trade
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China FUD
China FUD: Are We Done Yet?
Bitcoin Mining Recover?! The Chinese vs. The U.S Strategy of Blockchain
Red Alert: Lesson Learns from the Nearly Cashless Nation
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SEC FUD
SEC vs. Ripple: the Endless Game of War
SEC vs. Defi: What is the goal of the Defi?
The SEC Defi Investigation: The Decentralization Theater
Coinbase Regulation Probe: The Future of Crypto Lending
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NFT FUD
NFT: Digital Solution or Delusion?
NFT: The Future of Gamers' Assets
NFT Bubble: Does it Really Matter ?!
NFT Bubble May Just Almost Pop
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Miscellaneous
Where are We Position Crypto at : the Problem with Money and Wealth
What Categories Does Bitcoin Belong to or Does it Really Matter?
Quantum Financial System: The System Lost Itself in Quantum World
Crypto Hot Hub: The Best Place to become Crypto Incubator
Break the Fourth Wall?!
We Are Short for the Dollars: The Dollar's Liquidity Issue
Fiat vs. Crypto: Religion vs. Science or Vice Versa
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Bitcoin Digest
Is Bitcoin Untraceable Anymore?! It Depends!
Currency Comparison: Bitcoin vs Dollar
Bitcoin ETF May Not Be Such a Great Idea
Bitcoin Lightning Network Explain
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Ethereum Digest
Ethereum London Hardfork: How Hard does It Actually Fork?
Did the U.S. government just thumbs up on Bitcoin and down on Ethereum after the London Hardfork?
EIP-1559: The Future of Ethereum Economy
Ethereum Got Update Bug: A Blockchain Synchronization Problem
Buterin's Regret: Ethereum 8 Co-Founder Things
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Shitcoin Economy
The Legendary of Shitcoin: Meme to the 🌓 or Unique of 💎 or Simply just 💩
Crypto Economy: the Untold Speculative Financial System We will Live?
Shitcoin Economy: Part 1 - Category
Shitcoin Economy: Part 2 - Regulations
Shitcoin Economy: Part 3 - Environment
Shitcoin Economy: Part 4 - Technology
Shitcoin Economy: Part 5 - Detokenization
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Doge Economy
Doge 2.0: Who Let The Dog Out?!
Dogecoin 2.0: Doge Breeder Era
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Energy FUD
Bitcoin's Energy Concerns, Scalability and the End of Bitcoin Prediction
Unknown Author’s Hypothesis: Creator of PoW and PoS Hybrid Blockchain
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Tokenoconomy
Tokenism: An Old Idea Get A New Invention
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Crypto-regulation
Legal Framework of Virtual Currency
The Cantillon Effect: The 18th Monetary Curse About to be Broken
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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose cryptocurrencies are mentioned in this article. This information is only for educational
