Is Centralized Finance or Decentralized Finance Better? Heated crypto debates are underway

Many centralized financial platforms are going bankrupt. So, is investing in decentralized financial protocols safer than centralized financial platforms? With the heated debate among crypto enthusiasts, let's take a look at the pros and cons. The recently cryptocurrency crash has drawn attention to the inherent flaws of centralized finance (CEFI). Many crypto platforms such as Vold, Three Arrow Capital, Voyager, Hodnout, and Celsius have either gone bankrupt or stopped customer withdrawals altogether. Originally, cryptocurrencies were created to solve all the pitfalls that existed in traditional centralized financial systems, with third parties responsible for keeping your funds safe, issuing loans, and holding shares. Its purpose is to remove third parties from any transaction and function in the same way as digital currencies.

Key Features of Decentralized Finance

Decentralized Finance (DeFi) provides peer-to-peer services for all products (such as lending, insurance, or asset trading), similar to those of traditional banks, but without any third-party involvement.  Everything is built on "open source" smart contracts.  These contracts define the ground rules of a specific DeFi protocol.

DeFi protocols are democratically governed by Decentralized Autonomous Organizations (DAOs), such as the Ethereum Foundation, which govern token holders to determine rules and token economics.  So all the rules are made by whoever owns the tokens.  Decisions are made through a blockchain explorer and the information is available in the public domain.  New decisions and transactions are stored on the blockchain, and anyone who knows your wallet address can track your transactions through blockchain explorer sites like Blockchain.com.

Because it does not require permission, there is no central authority to block specific transactions on the blockchain.  It faster than the traditional banking system; loans are approved quickly.  Its most important feature is that it is almost free compared to traditional banking.

“The goal of DeFi 

to fully custody your own assets, fully control your own assets, and get more returns on your money. By cutting out the middleman, you can get cheaper loans, better deposits and insurance rates,” cryptocurrency exchange said Rajagopal Menon, vice president of WazirX. DeFi is definitely a safer option than CeFi, thanks to the latter's inherent properties. These include system transparency, overcollateralization and automatic liquidation of borrowers. We need to understand that DeFi is still an evolving concept and the more it gets adopted, the safer and more accessible to the masses,” said Sumit Ghosh, CEO and co-founder of blockchain social media platform Chinkari.

CeFi's mistakes

Bitcoin was born to address the inherent flaws of the traditional banking system.  CeFi is controlled by a central authority that can always block specific people’s accounts or transactions.


CeFi platforms Celsius, Hodlnaut and Vaultd went bankrupt and stopped withdrawing funds during the crypto market crash.  If a traditional government bank goes bankrupt, depositors receive a certain amount because their funds are insured by the government.  Not so with encrypted CeFi.

Also, since most of these exchanges are located in tax havens like the Cayman Islands and Singapore, investors’ funds are insured very differently.


The collapse of Terra Luna created a domino effect that led to the collapse of Three Arrows Capital, a cryptocurrency hedge fund that invested heavily in Terra Luna and the Bitcoin Grayscale Trust.  Three Arrows subsequently defaulted on a $670 million loan to Voyager Digital Holdings, forcing Voyager into bankruptcy.  One of the marketing tactics that these crypto companies often use is the promise of short-term returns, so investors should do their own research before investing in any financial product (including crypto) that promises high returns.

Menon added: “CeFi exchanges are the first step for new users to get into the world of crypto. They usually buy their first bitcoin, ether or USDT from a centralized crypto exchange like WazirX. Once they are familiar with crypto, they  The action starts. Their crypto assets go to NFTs and DEXs (decentralized exchanges).

“The problem is usually when people get greedy. Consumers chasing higher incomes drive companies to take risky strategies to generate income. The solution is to make users more cautious - be it fiat or cryptocurrencies - and only sign up to allow full withdrawals for you  Exchange of assets. Be wary of companies offering high returns and, finally, take full custody of your crypto assets. “The first rule of crypto is 'not your keys, not your crypto,'” he said.

In CeFi, crypto transactions and related operations are handled through a central exchange, while DeFi uses smart contracts and cryptocurrencies to provide services directly to consumers.​​​  In today's financial environment, financial institutions play the role of transaction guarantors.

“Your money goes through these institutions, so they have a lot of power. However, in DeFi, smart contracts replace financial institutions in transactions, which means these systems are uncensorable, transparent and secure,” Ghosh  added.