When we talk about a new kind of trading or investment, the idea of cryptocurrency is always there. For decentralizing the financial trading systems, the use of cryptocurrency was started. However, it resulted only in cryptocurrency trading in large volumes, as seen in the crypto fear and greed index. To trade in the financial system, you need to know about decentralized and centralized trading for better earnings.

This article will help you to know all the necessary facts about the Centralized financial trading system. 

Starting from what is Cefi to what advantages or disadvantages it has in the matter of financial trading. With the introduction of new blockchain technologies and the expansion of cryptocurrencies, it has become easier to understand concepts like CeFi or DeFi.

What is CeFi?

Centralized finance was the older theory for trading cryptos compared to the concept of decentralized finance. CeFi handles a stronghold over the market of cryptocurrency. In centralized finance (CeFi), there is a central or principal exchange present in the market through which the crypto trade orders are handled efficiently. The crypto transactions and other activities are supervised by the exchange. This helps to provide a better and secure environment for the traders or users. Here, the central authority manages all the funds. The users or traders do not have any private key in CeFi that provides a permit to your wallet. Also, the exchange specifies which they list for trading or what amount of money you need to pay to trade with their authority. CeFi provides individual management and manipulation of currencies in the supervision of the central exchange. The availability of cryptocurrencies is also checked by the centralized exchange present in this financial system. When buying or selling through a centralized exchange, the trader does not have ownership of his cryptos. Moreover, the trader is subject to the rules imposed by the central authority.

Generating revenue through CeFi

In CeFi, your investments can pay back with more profit. It is possible because the CeFi proposes a probability to generate income via crypto-based accounts. These accounts can be significant compared with the regular savings account of banks. These accounts help the traders to generate profits in an increased amount. Also, there are dangers in the crypto deposits, as they are not yet enclosed by government insurances. The yearly returns are often observed high in amount with the CeFi. Here, the cryptocurrency assets start working and are loaned out to other traders. The centralized provider gets an interest rate from the borrower, and customers get some of that interest from a centralized supplier. 

• Advantages

There are some advantages of CeFi present which makes it better than DeFi from many aspects.

1. Centralized exchanges (CEX): The centralized exchanges can lessen the security threats in the exchange procedures. As users transfer funds in standard crypto exchanges. These are managed within the internal account. The money is maintained outside the user’s control and becomes subject to threat. Here, customers trust the forms for their security, and in major exchanges, there is a whole department present to assist the consumer.
2. Fiat Conversion’s flexibility: Centralized finance provides a better service than decentralized finance (DeFi) for converting money into bitcoins or other altcoins. The DeFi services do not capitalize cash necessarily where CeFi does so by the centralized organization.
3. Cross Chain services: CeFi services authorize the traders to use any bitcoin for trading that is produced by independent blockchains. In comparison, DeFi services do not support this practice for complexity in the execution of cross-chain exchanges. CeFi can avoid the issue by acquiring custody of assets from various blockchains. 

• Drawbacks

1. Higher Transaction Fees:  The presence of more than one intermediary in the CeFi system increases the transaction fees.
2. Threats of Hackers: The traits of malicious activities by the hackers are more observed in the CeFi system because of the high liquidity of the exchange platforms. The cash can be easily lost by the customers as the data is open to the centralized system that can be hacked by these hackers easily.
3. Less transparent: The nature of the CeFi system is less transparent as these are closed by the central exchanges and cannot be regulated by smart contracts like DeFi.

The path of new or technologically advanced financing is witnessed gradually with the development in crypto-based trading. With a guarantee of funds, you can opt for a CeFi system. It will help you to experience better trading and profit.