From CeFi to DeFi: How investors can redefine their asset management approach
Centralized finance (CeFi) services such as crypto exchanges have accelerated the adoption of digital assets and blockchain solutions. Despite this, while retail traders can still use them for convenient crypto transactions and day-to-day operations, institutional investors can thrive long-term if they limit their exposure to CeFi risks and move to decentralized finance (DeFi) instead. With ambitious new projects coming to the table, the next leg of innovation will be pioneered by platforms offering the necessary infrastructure to bring institutional funds on chain.
The history of CeFi platforms is fraught with catastrophic failures, from Mt. Gox to more recent examples like FTX and BlockFi. CeFi platforms have demonstrated serious vulnerabilities, suffering from issues ranging from hacking to bankruptcy and causing significant losses to both retail and institutional investors. It seems that, unlike the traditional banking system, the crypto industry doesn’t have “too big to fail” services. The surprising collapses of Mt. Gox and FTX have revealed the weaknesses of the CeFi structure.
The same risks persist even today, as the CeFi industry hasn’t been able to upgrade its underlying infrastructure despite new security measures.
2022 was a challenging year for the crypto industry, and it proved once again that CeFi couldn’t provide transparent and secure investment management capabilities, with the platforms often co-mingling customer funds, engaging in extreme rehypothecation and lacking solid risk management practices. Moreover, centralized exchanges and platforms have too much control over user funds.
Although CeFi has been the go-to ecosystem for crypto asset management for years due to its liquidity and convenience, the
Read more on cointelegraph.com
