The introduction of CeDeFi, Centralized Decentralized Finance has drawn the attention of enterprises and professionals. Let’s dive deep and learn more about the term CeDeFi.
The new trends in the blockchain space are all set to shape up 2021 as the year when enterprise blockchain finds mainstream recognition. An annual survey by Gartner on blockchain service providers indicated that around 14% of enterprise blockchain projects had already shifted to production in 2020. The number indicated a profound growth from the 5% of enterprise blockchain projects moving to production in 2019.
However, one of the foremost Blockchain trends that would make an impact on the blockchain ecosystem would be centralized, decentralized finance. The introduction of CeDeFi has caught the attention of many enterprises and enthusiasts in Blockchain Technology. So, it is reasonable to dive into a deeper discussion on centralized, decentralized finance. The following details help you uncover detailed information about centralized, decentralized finance.
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Rise of CeDeFi – Understanding the Basics
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Gartner predicts that decentralized finance of DeFi technology will be eligible for enterprise adoption in 2022 with clarity on regulatory guidance. The traditional centralized financial institutions would embrace maturing DeFi applications, followed by integrating them with blended CeDeFi offerings.
The primary aim for introducing centralized, decentralized finance focuses on bringing the best functionalities of centralized and decentralized finance systems. So, centralize decentralized finance can offer traditional regulatory safeguards alongside modern innovative financial products and infrastructure.
The latest experiment by crypto exchange, Binance, for integrating DeFi (Decentralized Finance) with its centralized platform, known as Binance Smart Chain, could signal new beginnings for mass adoption of DeFi and crypto. Binance announced the introduction of its smart chain or a variant of decentralized public blockchain in the early half of September.
Many industry experts perceived the move of Binance into the DeFi space as an aggressive one for killing off Ethereum. However, CeDeFi does not try to compete with other blockchain projects in the financial landscape. An in-depth investigation of the different aspects of centralized DeFi on Binance could help in finding out more.
If you are new to the term DeFi, first go through the introduction to DeFi to understand what is DeFi. Here’s the Beginner’s Guide to DeFi.
Binance and Its Role in Introducing CeDeFi
The first thing that you should know about Binance is that it is the largest crypto exchange presently in the world. However, Binance has come a long way from being just an exchange and now serves as a huge ecosystem. Binance had introduced the Binance Chain for delivering a platform to achieve their vision for decentralized exchange (DEX) in place of a centralized Binance Exchange.
Binance has been one of the top exchanges with considerable dominance in the factor of the 24-hour trading volume. The pseudonymous founder and CEO of Binance, CZ, along with the company, found their entry in DeFi (Decentralized Finance) market with Binance Chain. Binance Chain was tailored for processing DeFi transactions with ease and boosting the arrival of a new trend in finance.
Subsequently, Binance came up with the Binance smart chain for helping users in building and developing decentralized applications or dApps. Binance came up with the Binance Chain in April 2019 and started the smart chain in September 2020.
So, one could clearly anticipate the fact that Smart Chain is comparatively new, especially with respect to the DeFi market. Therefore, it is difficult to discover the various promising projects on the smart chain. On the other hand, both the Binance Chain and Smart Chain attract the attention of researchers, developers, investors, and traders.
Both the Binance Chain and Smart Chain work together in parallel with independent as well as interoperable features. Binance Chain aims at matching up with the transaction speeds in a general centralized exchange. On the other side, Binance Smart Chain could offer the advantage of the relief from network congestion issues. The smart chain also takes away the worries of higher fees that you can find in Ethereum.
Check Now: Difference between CeFi and DeFi i.e. DeFi vs CeFi
Functionalities of Binance Chain and Smart Chain
A comparison of Binance Chain and their Smart Chain can add further depth to this discussion. The Binance Chain is similar to many other blockchains in terms of features. First of all, it can send as well as receive BNB tokens alongside other digital assets. The decentralized exchange of the Binance Chain can develop maker/taker orders and propose new trading pair listings. In addition, the decentralized exchange of the Binance Chain could also list different assets from other chains. Now, let us take a look at the features of Smart Chain on Binance to strengthen our understanding of CeDeFi.
PoSA or Validators
The foremost feature that you can notice in Smart Chain on Binance refers to PoSA or Proof of Stake Authority. The PoSA is a consensus mechanism and offers reliable security and safety with PoSA consensus and validators. Smart Chain can also ensure the reduction of costs and block times to around 5 seconds with the use of PoSA.
Ethereum Virtual Machine Compatibility
The next dominant feature of Binance Smart Chain refers to the compatibility with Ethereum Virtual Machine or EVM. Therefore, Smart Chain can work comfortably with the smart contracts and protocols that are compatible with EVM. Smart Chain presents the advantage of lower cost with improved speed, thereby working perfectly with EVM.
Smart Chain also allows better prospects for cross-chain transfers due to the advantages of interoperability. It provides the benefits of programmability to Binance Chain while also ensuring the delivery of high-performance and scalable dApps to market. With these facilities, Binance can definitely spark up new performance levels in the CeDeFi landscape.
Another potential feature that you can notice with Smart Chain on Binance refers to on-chain governance. PoSA can allow the integration of decentralization along with the power of community. In the case of Smart Chain, the native BNB token could work as the source of gas fees for smart contract execution. In addition, it could also become the token of choice for the purposes of staking.
Read More: How Does Decentralized Finance Work?
The Role of PoSA and Validators
Binance Smart Chain brings the advantage of validators and PoSA to refine the scope of conventional DeFi applications. The PoSA or proof-of-stake consensus mechanism restricts the number of validator nodes in comparison to general proof-of-stake blockchains. In addition, the design of PoSA provides the benefits of performance optimization.
Binance must provide approval for the validator nodes before they start operating on the network. As a result, the Smart Chain has a specific, limited number of validators under the ownership and operations of Binance. Validators have to put BNB tokens at stake for earning a share of the transaction fees of the network.
At the same time, allocation must be proportionate with the stakes of validators. Validators get the chance at voting privileges for network parameters. Therefore, DeFi believers are not concerned about the new extents of centralization with Smart Chain on Binance. So, the founder of Binance CZ has come up with the term ‘CeDeFi’ for the Binance DeFi.
Also Read:Risks in DeFi
Binance Centralized-DeFi (Binance CeDeFi)
Now that you have a basic idea about the Binance Smart Chain, it will be safe to a discussion about Binance centralized-DeFi. Many people can reasonably draw assumptions about the similarity of smart chains with other DeFi platforms. From a democratic perspective, any individual identifying malicious behavior by centralized validator nodes could submit slash requests for penalizing them.
On the other hand, it still continues to be a hybrid system with centralized and decentralized functionalities. Furthermore, Smart Chain is also vulnerable to corruption risks by any type of centralized authority. However, these factors don’t reduce the popularity of CeDeFi among Binance fans.
The TVL or Total Value Locked in centralized-DeFi protocols of Binance verifies the rise in its popularity. Since the TVL in centralized-DeFi protocols of Smart Chain on Binance is growing exponentially and could reach a total valuation of $4.6 billion, basically, you can assume that CeDeFi started off with the Smart Chain on Binance which offers compatibility with Ethereum blockchain.
It is slowly expanding applications with support for dApp development in gaming, NFTs, and most commonly, DeFi. In addition, investors who don’t care about level of centralization could achieve faster block times alongside reduced fees in comparison to Ethereum.
If you are still wondering about the real-time adoption of DeFi (Decentralized Finance) by the enterprises. Check out the Top DeFi Projects.
Potential Benefits of CeDeFi
So, now you know what CeDeFi actually is and its origins, along with its various functionalities. Therefore, it is important to find out the advantages offered with Smart Chain on Binance and the reasons for popularity. Here is a look at some of the top advantages you can get with Binance CeDeFi, which can take the new concept to greater heights in the modern financial ecosystem.
Funding of Binance for the Protocols
The foremost advantage that you can get with centralized DeFi on Binance is the funding of protocols. Binance provides funding for different protocols on their Smart Chain. The Binance team works on identifying current and future projects that they want to sponsor through Binance Accelerator Funds.
In addition, Binance introduced around $100 million for funding projects eligible for introducing value in Binance ecosystem after launching Smart Chain. The support in terms of funding offers considerable support for CeDeFi founders, creators, and developers of all types.
Binance can enable liquidity for various protocols through grants and create economic activity for drawing in more users and liquidity. So, it is reasonable to encounter many new CeDeFi projects with massive potential for profit. Binance presents funds for centralized-DeFi projects for passing due diligence processes effectively.
The due diligence process involves comprehensive security audits, and Binance rewards candidates with various resources throughout the ecosystem. Binance provides various functionalities such as access to media outlets, a massive customer base with millions of customers, financial management, and education platforms.
At the same time, Binance also offers the opportunity for creators to list a token on Binance exchange effectively. The CEO and founder of Binance, CZ, also announced the vetting process focused on excluding common DeFi issues related to rug pulls and scams. Security audits in the CeDeFi landscape also provide safeguards against top attacks against DeFi platforms.
On the other hand, smart contract security audits do not provide a guarantee of complete security. Despite the various plus and minus signs with Binance centralized-DeFi, users can be sure of one particular thing. The symbiotic relationship between Binance Smart Chain and Binance Chain delivers dual-chain architecture. Dual-chain architecture works well for users seeking faster trades and a platform for building dApps.
Aspiring to learn more about DeFi? Register now for the DeFi and Future of Finance webinar.
Benefits of Yield Farming
The popularity of Binance CeDeFi also depends largely on yield farming. Yield farming focuses on combining the processes of borrowing, lending, and trading for improving profits on tokens. The tokens must be locked up in different DeFi protocols. In the earliest days of DeFi, the annual percentage yields reached insane levels.
In some cases, users could get the opportunity to earn over 1000% APYs. However, such types of returns don’t have the ability to sustain and have subsided as a result. On the other hand, Binance Smart Chain presents favorable prospects for starting the centralized-DeFi movement of its own. Certain protocols on Binance CeDeFi have witnessed APYs more than regular DeFi protocols.
Furthermore, you shouldn’t be surprised to find three-figure APYs with centralized-DeFi. The alarming factor is that certain percentages are presently churning out almost 20 times the returns on funds locked for a day. However, this doesn’t mean that you can push in huge sums of money to Binance Smart Chain. Take your time and go through the protocols to find the ones that interest you.
Support for Ethereum
Another potential reason for the growing popularity of CeDeFi through the efforts of Binance is the support for Ethereum. The extensively high costs with Ethereum scale up the costs of DEX transactions to hundreds of dollars. Furthermore, Ethereum imposes network congestion issues, thereby leading to additional time consumption.
On the other hand, Binance CeDeFi offers fees that appear almost negligible. Users could also confirm the fees within five seconds, thereby leading to faster transactions. The average DeFi user could perceive these advantages as one of the top reasons to shift from the Ethereum space. How long would you have to invest hundreds of dollars for interacting with desired protocols?
Also Read:What is Enterprise Ethereum
On a concluding note, you can clearly observe how CeDeFi is all set to transform the financial landscape. The rising scope of digitalization creates many concerns for financial services, especially regarding security, control, and transparency. Therefore, DeFi or decentralized finance projects started gaining the attention of users seeking democratic control over financial transactions.
The arrival of the Binance smart chain could bring many changes in the long term for introducing centralized-DeFi. If you want to learn more about CeDeFi and how it can transform the way you traded with digital currency, choose 101 Blockchains right now. Enroll in the DeFi course and explore more insights on the new concept of centralized, decentralized finance!