Before the Decentralized Finance (DeFi) boom, Centralized Finance (CeFi) was the go-to option for trading crypto. Both share the same goal – to let users buy, sell, and trade crypto. However, CeFi users trust a centralized exchange (CEX) to manage their assets, while DeFi users trust a technology.
Both have advantages and disadvantages, but there is an alternative, Centralized Decentralized Finance (CeDeFi), which brings together the best of CeFi and DeFi. Functionalities of DeFi like token trading and swapping are provided to users with the flexibility and security of CeFi.
The main benefit, however, comes from yield farming.
Yield farming fuels DeFi. Traditional banks receive liquidity from depositors. In DeFi, there are liquidity providers who lock their crypto assets in liquidity pools in exchange for a reward.
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However, there are risks. Beginners can’t even contemplate yield farming, because it requires high technical knowhow. Additionally, users risk investing in the wrong deal, and can potentially lose their assets. Also, when they invest, they get special tokens called LP tokens.
This means yield farming on DeFi platforms requires the use of two different types of tokens. To add to all this, the high gas fees make it hard to harvest rewards.
But CeDeFi offers a solution, says Son Dinh, Co-Founder and CEO of MoonFarm.Finance, a cross-chain CeDeFi platform that optimizes the process of yield farming and aims to ease the farming mechanisms across different blockchain networks.
Son Dinh
CeDeFi is a hybrid system, constituting the cherry-picked benefits of both the traditional financial system or CeFi and DeFi. It is a trend that I believe will stand the test of time
“CeDeFi is a hybrid system, constituting the cherry-picked benefits of both the traditional financial system or CeFi and DeFi. It is a trend that I believe will stand the test of time,” he says.
The Tech Panda asked Dinh all about CeDeFi and how MoonFarm works.
What is CeDeFi?
On CeDeFi platforms, users can enjoy the flexibility of CeFi and the high APR (Annual Performance Rate) of DeFi.
“CeDeFi, for me, is a potential solution for two major concerns. First off, it shall remove the growing mistrust against traditional or centralized intermediaries and their autonomy. Next, it provides an ideal launchpad for DeFi products and applications to be integrated into mainstream financial systems, says Dinh.
CeDeFi, for me, is a potential solution for two major concerns. First off, it shall remove the growing mistrust against traditional or centralized intermediaries and their autonomy. Next, it provides an ideal launchpad for DeFi products and applications to be integrated into mainstream financial systems
For instance, MoonFarm allows users who wish to yield farm to deposit their assets into the platform’s vaults. The platform then finds high-performing pools and DeFi platforms. This way, it maximizes profit and minimizes risk for its users. The platform also harvests rewards and deposits into users’ wallets.
We see news headers where certain DeFi’s yield farming provided a four-digit APR. These are astronomic numbers for a user enjoying 1-12% interest rates on CeFi platforms, says Dinh. Apart from that, there are other benefits such as instant P2P loans, staking, and other use cases that offer significant benefits over CeFi services.
Now, can the latter jump into the DeFi bandwagon and earn?
“No. Complicated operations, restrained entry, and the need for technical experience are all barriers hard to mount,” he replies. “CeDeFi removes these barriers and provides a simple, CeFi-like entry into DeFi. By this, even users with negligible to no experience can enjoy the growing benefits of DeFi.”
How Does Cedefi Differ from CeFi & DeFi?
In CeFi, users trust a centralized authority, informs Dinh.
“The ease of access and global adoption of CeFi is visible. And with fiat currency-related transactions still dominating the financial systems at scale, replacing CeFi is not practical. However, the lack of transparency and absolute autonomy concentrated in the hands of a few is concerning to the multitude,” he says.
Here, CeDeFi transitions the placing of trust from an authority onto a protocol. But unlike DeFi, this trust shall be under oversight; CeDeFi stands to enjoy the benefits of regulations and other safeguards.
“Also, we all have heard the noise against the rising transaction fees in the DeFi circles. It all boils down to the scalability concerns of DeFi, which is persistent with the Ethereum blockchain,” he explains.
“CeDeFi solves this by gifting interoperability to the users. From holding multiple tokens to cross-chain transfers, CeDeFi provides much-needed flexibility to the users,” he adds.
Risks Associated with DeFi Yield Farming
Hiding behind four or five-digit APRs, lie risks of gigantic proportions associated with DeFi Yield Farming, says Dinh.
“Right now, there are many projects, where the prices have raced way ahead of the real value of the asset or token. When the FOMO settles down, we might see an enormous crash. And all these can be attributed to the lack of investor education,” he informs.
Whilst this is a common issue with any exciting innovation, DeFi Yield Farming has some glaring risks outside this.
Right now, there are many projects, where the prices have raced way ahead of the real value of the asset or token. When the FOMO settles down, we might see an enormous crash. And all these can be attributed to the lack of investor education
“Look at impermanent losses, one event, and we might see millions of dollars being wiped out of the market. The impact of economic swings on yield farming is absolute. For every change in a token’s value in the external market, an arbitrageur is required to match the particular token pair’s value to their (an AMM’s) offering price,” he says.
He further explains that due to these balancing efforts by the arbitrage traders, liquidity providers stand to lose their profits. To match the prices, the profit earned from the appreciation of the token is taken away from the liquidity provider. And when traders withdraw their liquidity, they realize this impermanent loss.
“Along with this, the process of farming a token is complex and is ridiculed by multiple transactions. More transactions mean more gas fees. Considering all these, for an investor with small funds, HODLing would undoubtedly be better than farming,” he says.
Mitigate Those Risks with CeDeFi
CeDeFi makes the onboarding process seem like a drive-through. Unlike DeFi, where users need to own non-custodial wallets to farm, using CeDeFi, users can farm using custodial, web2-like digital wallets.
“The CeFi-like user experience is highly beneficial in the longer run. Leveraging this seamless onboarding UX, I envision the mass adoption of CeDeFi,” Dinh predicts.
The CeFi-like user experience is highly beneficial in the longer run. Leveraging this seamless onboarding UX, I envision the mass adoption of CeDeFi
“To reduce the risk of impermanent losses, users can leverage the ability of CeDeFi to invest in multi-chain projects. By removing the single network restriction of most DeFi projects, users navigate through the depths of volatility,” he adds.
Furthermore, with regulatory oversight in place, CeDeFi pushes the project devs to optimize their capital utilization. This further reduces the volatility and makes yield farming a more lucrative opportunity for passive income.
The MoonFarm Way
MoonFarm is a cross-chain CeDeFi platform that optimizes the process of yield farming and aims to ease the farming mechanisms across different blockchain networks.
“We trust to achieve this by integrating DeFi’s transparency and innovation with CeFi’s ease of use,” says Dinh.
Our smart contracts auto-harvest daily to maintain transparency and equality. And users pay zero transaction fees for this. Furthermore, we charge zero gas or vault fees from our users for farming. And we are committed to maintaining this, irrespective of market conditions
Currently, stablecoins and retailer-friendly tokens are on the rise in the crypto market. This serves as a growing need for MoonFarm and its solutions.
Contrary to DeFi protocols, where users need to make multiple swaps and may pay hefty fees, MoonFarm enables users to use just one kind of digital asset to start farming. After a user deposits the token, MoonFarm is engaged in optimizing the farming process pursuing low risks and high APYs. Depositing the token and deciding from a range of highly vetted DeFi platforms are the only two steps for the users to farm.
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“Our smart contracts auto-harvest daily to maintain transparency and equality. And users pay zero transaction fees for this. Furthermore, we charge zero gas or vault fees from our users for farming. And we are committed to maintaining this, irrespective of market conditions,” he says proudly.
Altogether, MoonFarm is devoted to making yield farming a user-friendly, yet profitable venture for users.
“With a strategic roadmap in place, I sincerely believe in MoonFarm being the complement that DeFi required for mass adoption,” he concludes.