While inherent strengths can be found in both centralized finance and decentralized finance companies, there are certain areas where DeFi shines, including user empowerment, transparency, and outreach. While clients may be attracted by CeFi's perceived advantages of security and strength, in an increasingly digital global economy, if CeFi companies cannot keep up with user expectations set by DeFi technologies and protocols , its advantages may become less important among younger users and markets (or even disappear altogether).
To avoid a slow slide into irrelevance, and to better serve their current users, DeFi firms should take a look at the aspects of CeFi that consumers find most attractive. Next, 13 members of Cointelegraph Circle of Innovation share some of the leading DeFi practices that CeFi companies should emulate.
Don't play favorites
A trusted intermediary is required for CeFi transactions, which means the rules and regulations can be changed. Rather, DeFi rules and regulations are immutably embedded in the blockchain. This means that there are no "favorites" in the DeFi protocol. No matter who you are, if you are insolvent, you will be liquidated according to protocol, not according to the whims of vested parties. โ lawrence hutson, AdMoon Inc.
Open access for those who are underserved
CeFi companies can learn from DeFi's focus on financial inclusion, which aims to bring access to financial services to unbanked and underbanked populations. By leveraging blockchain technology and lowering barriers to entry, CeFi companies can create more inclusive products, reach untapped markets, and contribute to global financial inclusion efforts. โ Tomer Warsaw Nuni, cryptomon
Work to democratize financial services
DeFi companies have made financial services accessible to anyone, anywhere in the world. They have democratized financial services by providing access to anyone with an Internet connection. CeFi products can adopt user-friendly interfaces, lower barriers to entry, and offer inclusive financial solutions to reach a broader user base. โ vikram singh, Antier Solutions Pvt. Limited.
Embrace the decentralized spirit of blockchain
CeFi companies and their users would benefit from the level of transparency and clearly recorded proofs of reserves that DeFi protocols prioritize. While centralized exchanges like FTX have sometimes hidden insolvency, to the detriment of clients and the industry at large, projects like Uniswap, with open source codes, embody the public and decentralized ethos of blockchain technology. โ brent, umee
Make transactions more transparent
Transparency is the superpower of DeFi. It is a quality that is often lacking in CeFi. CeFi companies can benefit from the DeFi example by providing more transparency around asset holdings and transactions, putting transactions and wallets on-chain, and regularly reporting holdings. It is beneficial for CeFi and for the industry: more transparency leads to more trust, which leads to more business. โ Shiv Madan, moon walk
Empower your users
CeFi companies can learn from DeFi by emphasizing user empowerment and user control over their financial assets. Embracing decentralization principles can enhance user autonomy, privacy, and security while delivering innovative financial services that build trust and meet the changing needs of users in the digital age. โ arvin khamseh, SOLD OUT NFTs
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explain the changes
One of the significant drawbacks of using CeFi services is the lack of transparency and control that users have to control their assets. The CeFi industry would love to embody much of what draws people to DeFi, but it has become strict, with regulations becoming stricter. Therefore, CeFi companies should be much more transparent with their users about why and when changes are made. โ Sheraz Ahmed, STORM Partners
Adopt a community-driven decision-making process
CeFi companies must learn the importance of having a community-driven decision-making process. By introducing governance tokens, they can allow users to participate in directing the development process. This can lead to a sense of ownership, loyalty, and active participation. At the same time, it can help a CeFi company to create a product that meets the needs of its customers and is more trustworthy and transparent. โ bogomil stoev, season tokens
Embrace interoperability
The power of DeFi lies in its interoperability and composability, with protocols working together like "legs of money." This allows users to put together complex strategies. CeFi firms often operate in silos, restricting their offerings. By embracing interoperability, CeFi can integrate services, creating richer customer value propositions. Integration is key to future financial innovation. โ Maksym Ilyashenko, My NFT Wars: Rift Guardians
Establish a more open ecosystem
CeFi could foster open innovation and interoperability through decentralized protocols and open source development. DeFi initiatives are built on transparent, permissionless networks that allow a global community of developers to collaborate, share ideas, and iterate on products and services. This open ecosystem often encourages rapid innovation and the creation of innovative financial solutions. โ Theo Sastre-Garau, NFNight
Seeks to compete with the prowess of DEXs
Traders who opt for decentralized exchanges are generally drawn to the sense of freedom that these platforms instill. Centralized exchanges can offer great protection and peace of mind to their communities, but if they can't keep up with efficiency, they just end up replicating the limitations of traditional systems. In the long run, CEXs may respond to the prowess of DEXs or risk becoming the new establishment. โ Oleksandr Lutskevych, CEX.IO
Provide real-time data and reports
Transparency is key. DeFi's efficiency is demonstrated by its open and auditable blockchains. CeFi companies must provide real-time financial data and reports, enable on-chain transactions, integrate wallets, and work to improve the user experience. Expanding services and removing barriers are important steps toward inclusion. For trust and innovation, CeFi must learn about openness, user control, and inclusion. โ Myrtle Anne Ramos, Lock Tides, PlaceWar
Let users verify, don't trust
Unlike traditional finance and centralized Web3 exchanges, DeFi investors can use blockchain explorers to determine exactly where their assets are at any given time. By allowing users to track their funds, companies can mitigate the risk of bank runs that can occur as soon as this trust is questioned. โ Wolfgang Ruckerl, ENT Technologies AG
This article was published via the Cointelegraph Innovation Circle, a vetted organization of top executives and industry experts in blockchain technology who are building the future through the power of connections, collaboration, and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
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