Please note: Every Bit Helps DeFi rates are regularly updated, although rates can change quickly. Every Bit Helps does not provide financial advice, investing in cryptocurrency is very risky. We recommend seeking advice from a professional before making a financial decision.
DeFi (Decentralized Finance) platforms are run by the power of smart contracts. The money you deposit into your DeFi bank will be given out to borrowers when the acceptable loan conditions are met. With over-collateralization in place, the collaterals of borrowers will be liquidated if the value of the collateral falls below a certain threshold.
Although centralized finance (CeFi) and decentralized finance (DeFi) platforms offer similar services to the same set of customers, there is a stark difference in how they operate.
The main difference between a DeFi and CeFi platform is who controls and runs the platform. With CeFi platforms like Celsius or BlockFi, it’s a centralized authority that runs the day-to-day operations of the financial institution. With DeFi, it is algorithms and smart contracts that run the show.
Whether it’s a lending platform or exchange, your funds are stored in a central reserve on a CeFi platform. Whereas Aave and Compound are DeFi platforms and money moves from one user wallet to another user wallet without moving through a central reserve. Due to the nature of how they are run, there are a host of differences that arise due to this major difference: