# CeFi vs. DeFi -- Comparing Centralized to Decentralized Finance

**Authors:** Kaihua Qin, Liyi Zhou, Yaroslav Afonin, Ludovico Lazzaretti, Arthur Gervais  
**arXiv:** [2106.08157](https://arxiv.org/abs/2106.08157)  
**Date:** 2021-06-15  
**Summary page:** https://www.summarizepaper.com/en/paper/2106.08157v2/

## Key points

- Centralized Finance (CeFi) has been the norm in finance
- Decentralized Finance (DeFi) promises transparency and control
- DeFi relies on blockchain technology and offers higher financial asset yields than CeFi
- Differences between CeFi and DeFi can be blurred in practice
- Researchers developed a methodology to differentiate between CeFi and DeFi services by analyzing differences across legal, economic security, privacy, and market manipulation dimensions
- Certain DeFi assets like USDC or USDT stablecoins may not classify as DeFi assets and could endanger the economic security of intertwined DeFi protocols
- Possible synergies between CeFi and DeFI could benefit both sides

## Summary

In the world of finance, Centralized Finance (CeFi) has long been the norm but with the advent of Decentralized Finance (DeFi), a new ecosystem is emerging that promises transparency and control. However, for non-experts CeFi can be obscure as users are not always aware of the underlying rules and agreements governing financial assets and products. In contrast, DeFi relies on blockchain technology to ensure integrity and offers higher financial asset yields than CeFi. But while there may be clear differences between CeFi and DeFi in theory, in practice these boundaries can be blurred. To address this issue, a team of researchers developed a structured methodology to differentiate between a CeFi and a DeFi service by systematically analyzing the differences across various dimensions such as legal, economic security, privacy and market manipulation. Their findings revealed that certain DeFi assets like USDC or USDT stablecoins may not necessarily classify as DeFi assets and could even endanger the economic security of intertwined DeFi protocols. The researchers conclude their work by exploring possible synergies between CeFi and DeFI which could benefit both sides. Overall, this study sheds light on an important topic in finance today – the evolving landscape of centralized versus decentralized finance – and provides valuable insights for investors looking to navigate this complex terrain with greater clarity.