CeDeFi stands for Centralized Decentralized Finance. CeDeFi represents a hybrid of centralized and decentralized financial systems, with its primary aim being to combine the best features of both worlds. Specifically, CeDeFi offers the traditional regulatory safeguards of centralized finance (CeFi), while also providing the innovative financial products and infrastructure seen in decentralized finance (DeFi). An example of CeDeFi we can observe today is MakerDAO.
MakerDAO operates as a lending platform that powers a decentralized stablecoin, DAI, which is pegged to the U.S. dollar. Users can take out loans in DAI using other cryptocurrencies as collateral, adopting a system of over-collateralization to protect against crashes in the value of the backing cryptocurrencies. This process mirrors traditional lending mechanisms, offering a sense of centralized financial stability within a decentralized framework.
Borrowing DAI allows investors to access a U.S. dollar stablecoin without selling their ETH, which can be beneficial given that many yield farms and lending platforms offer higher returns for U.S. dollar stablecoins. In addition, the Dai Savings Rate (DSR) provides returns to those who lock up DAI in the DSR’s smart contract, allowing Maker’s governance module to influence DAI demand, mirroring the role of a centralized bank.
This crucially demonstrates the ethos of traditional finance being upheld parallel to the technological infrastructure decentralized finance can offer.