Get Ready for 'CeDeFi' While Crypto CEO Warns of a DeFi Bubble
Major crypto exchange Binance announced that they are attempting to bridge decentralized (DeFi) and centralized finance (CeFi) via a new support fund, prompting discussions of the creation of "CeDeFi." At the same time, crypto market data provider Messari CEO warned of a DeFi bubble pop coming sooner than expected.
Binance said it's "establishing a USD 100 million seed fund to empower emerging projects and drive collaboration" between CeFi and DeFi. DeFi projects will soon be called to submit their proposals, said the company, with "strong projects" competing to win "up to USD 100,000 in funding," while "high-quality projects may even have the opportunity to participate to be listed on Binance."
Among other ways they're trying to bridge CeFi and DeFi, the exchange said it's working with the Binance Smart Chain community through the Token Canal project, announced several days ago, to help developers connect the Binance Smart Chain (the exchange's own dual-chain architecture) with other public chains, enabling tokens on those other chains to be connected to Binance's, including Bitcoin (BTC) and Ethereum (ETH).
And then, the new term 'CeDeFi' was born in the Cryptosphere. Binance CEO Changpeng Zhao said that "DeFi is great. I love it. But CeFi is about to give it a run for its money." There are two advantages CeDeFi offers, he said:
- "Exchange vetted projects/tokens. Not bulletproof, and sometimes may even be negative (depending on the centralized exchange, or CEX), but a reputable CEX is financially incentivized to maintain it.
- With DeFi, you have to choose a single project. With CeFi, BNB staked on Binance can/will earn multiple yields/tokens simultaneously. 1x vs Nx. Hard to ignore."
However, Dovey Wan, Founding Partner of California-based investment company Primitive Ventures, said that Changpeng Zhao is not correct when he's talking about these two CeDeFi advantages.
Wan argued that an "exchange is incentivized to maintain pumpability of coins it list hence its users are willing to stay". As for the second advantage, she added that DeFi "pools of capital can do [the] same without central authority and fund custody."
"What’s most important, users can only expose to [an] asset they want to hold long term instead of rushing market buy BNB driven by [an] event, reduces allocation friction/portfolio shift," Wan stressed.
Jay Hao, CEO of a competing exchange, OKEx, chimed in, saying that CeDeFi is something this platform is working on too. "[In my opinion] the fierce competition between DeFi projects far exceeds that of CeFi, but CeFi can help high-quality DeFi projects stand out," he wrote.
That's what @OKEx is working on. CeFi and DeFi can work with each other, and create something new— Jay Hao @OKEx (@JayHao8) September 11, 2020
The Cryptoverse was quick to react. "Hearing disturbing rumors that some people are trying to make "CeDeFi" a thing," said Arjun Balaji, Investment Partner at Paradigm. And while some are sticking to their "standards," others argue that "its always more profitable to trade in CeFi." The third camp offered another point of view, that "without Fiat Onramp adoption will take much longer."
However, multiple industry players argued that CeDeFi is just usual centralized finance.
Yet some suggested that there might be some benefit in this CeFi-DeFi cocktail:
i understand that a lot of people in defi look negatively at exchanges / cefi— 찌 G 跻 じ ⚡️ 🔑 (@DegenSpartan) September 11, 2020
imo the best to think about it is an additional set of plays to consider with its own pros and cons
there's no need to pick a side when you can cherry pick and enjoy the best of both when it suits you https://t.co/02CVf4KvZM
Meanwhile, crypto market data provider Messari CEO Ryan Selkis was discussing a DeFi bubble, warning that it will pop sooner than expected, drawing a comparison with the 2017 initial coin offering (ICO) boom. The latter boomed because people thought there'd be a coordinating utility token for every industry, said Selkis, while DeFi is "just one big pool of capital sloshing around a small group of insiders and mercenaries who will soon run out of victims to fleece."
And while it's an interesting experiment, in which "smart people are making a killing," he wouldn't recommend DeFi to most people, he added.
It is extremely frustrating to see certain people put ponzi schemes, rug pulls and Defi in the same bucket https://t.co/fJAkQZMRTZ— musa.eth (@musatheredguard) September 10, 2020
At the same time, research analyst at Messari Ryan Watkins argued that "going full degen pays dividends."
My biggest source of alpha the past 3 months has simply just been using DeFi protocols.— Ryan Watkins (@RyanWatkins_) September 11, 2020
It’s the only way you’ll be able to appreciate the value they create and opportunities they offer.
DeFi is becoming way to complex to just consider it abstractly from the sidelines.
All that said, some, like Managing Director of IDEO CoLab Ventures Ian Lee, argue that "CeFi is going to be eaten by DeFi from the ground up."
CeFi is going to need to do *a lot* more than this to take on DeFi.— Ian Lee (@ianjohnlee) September 11, 2020
Exchange vetted tokens is a bug not feature, & $YFI > $BNB re yield.
How CeFi should compete:
- Better UX
- Fiat on/off ramps
- Under collateralized lending
- Services (reporting, tax)
- Real world integration https://t.co/5oTdiSAny0
Setting aside the paradox of having something called "centralized decentralized finance," and the 'centralized' component being the exact reason DeFi was created in the first place, it still remains to be seen if the concept will live only within the name, or if it will take an actual form.