While there are inherent strengths to be found in both centralized finance and decentralized finance companies, there are certain areas in which DeFi shines, including user empowerment, transparency and reach. While customers may be drawn to CeFi’s perceived security and strength advantages, in an increasingly digital, global economy, if CeFi companies can’t keep up with the user expectations being set by DeFi technologies and protocols, their advantages may come to count for less among younger users and markets (or even disappear altogether).
To avoid a slow slide into irrelevance — and to better serve their current users — DeFi companies should take a look at the aspects of CeFi consumers find most appealing. Below, 13 members of Cointelegraph Innovation Circle share a few of the leading DeFi practices CeFi companies would be wise to emulate.
Don’t play favorites
A trusted intermediary is required for CeFi transacting, which means that the rules and regulations can be changed. Conversely, DeFi rules and regulations are immutably inscribed on the blockchain. This means that there are no “favorites” in the DeFi protocol. No matter who you are, if you are insolvent, you will be liquidated according to the protocol, not according to the whims of parties with vested interests. – Lawrence Hutson, AdLunam Inc.
Open up access for those who are underserved
CeFi companies can learn from DeFi’s focus on financial inclusivity, which aims to provide access to financial services for unbanked and underbanked populations. By leveraging blockchain technology and reducing entry barriers, CeFi firms can create more inclusive products, reach untapped markets and contribute to global financial inclusion efforts. – Tomer Warschauer Nuni, Kryptomon
Work to democratize financial services
DeFi companies have made financial services accessible to anyone, in any part of the world. They have democratized financial services by providing access to anyone with an internet connection. CeFi products can adopt user-friendly interfaces, lower barriers to entry and offer inclusive financial solutions to reach a broader user base. – Vikram Raj Singh, Antier Solutions Pvt. Ltd.
Embrace blockchain’s decentralized ethos
CeFi companies and their users would benefit from the level of transparency and clearly recorded proofs of reserves that DeFi protocols prioritize. Whereas centralized exchanges like FTX have sometimes hidden a lack of solvency — to the detriment of customers and the industry at large — projects like Uniswap, with open source codes, embody the public, decentralized ethos of blockchain technology. – Brent Xu, Umee
Make transactions more transparent
Transparency is the superpower of DeFi. It’s a quality that’s often lacking in CeFi. CeFi companies can benefit from DeFi’s example by providing more transparency around transactions and asset holdings, by putting transactions and wallets on-chain and by regularly reporting holdings. It’s a win-win for CeFi and for the industry: Greater transparency leads to greater trust, which leads to more business. – Shiv Madan, Moonwalk
Empower your users
CeFi companies can learn from DeFi by emphasizing user empowerment and users’ control over their financial assets. Embracing decentralization principles can enhance user autonomy, privacy and security while delivering innovative financial services that build trust and meet evolving user needs in the digital age. – Arvin Khamseh, SOLDOUT NFTs
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One of the significant turn-offs of using CeFi services is the lack of transparency and control users have in governing their assets. The CeFi industry would love to embody much of what draws people to DeFi, but it’s become strict, with ever-tightening regulations. Therefore, CeFi companies should be much more transparent with their users about why and when changes are made. – Sheraz Ahmed, STORM Partners
Adopt a community-driven decision-making process
CeFi companies should learn the importance of having a community-driven decision-making process. By introducing governance tokens, they can allow users to participate in directing the development process. This can lead to a sense of ownership, loyalty and active participation. At the same time, it can help a CeFi company to build a product that both meets the needs of its customers and is more trustworthy and transparent. – Bogomil Stoev, Seasonal Tokens
DeFi’s power lies in its interoperability and composability, with protocols working together as “money Legos.” This empowers users to assemble complex strategies. CeFi firms often function in silos, restricting their offerings. By embracing interoperability, CeFi can integrate services, creating richer customer value propositions. Integration is key for future financial innovation. – Maksym Illiashenko, My NFT Wars: Riftwardens
Establish a more open ecosystem
CeFi could foster open innovation and interoperability via decentralized protocols and open-source development. DeFi initiatives are constructed on transparent, permissionless networks that enable a global developer community to collaborate, share ideas and iterate on products and services. This open ecosystem frequently fosters rapid innovation and the creation of innovative financial solutions. – Theo Sastre-Garau, NFTevening
Seek to compete with the dexterity of DEXs
Traders who opt for decentralized exchanges are typically attracted to the sense of freedom these platforms instill. Centralized exchanges can offer great protection and peace of mind to their communities, but if they’re unable to follow through on efficiency, they just end up replicating the limitations of traditional systems. In the long run, CEXs can either respond to the dexterity of DEXs or risk becoming the new establishment. – Oleksandr Lutskevych, CEX.IO
Provide real-time data and reports
Transparency is key. The efficiency of DeFi is demonstrated by its open, auditable blockchains. CeFi companies should provide real-time data and financial reports, enable on-chain transactions, integrate wallets and work to enhance the user experience. Expanding services and removing barriers are important steps toward inclusivity. For trust and innovation, CeFi should learn about openness, user control and inclusivity. – Myrtle Anne Ramos, Block Tides, PlaceWar
Let users verify, not trust
Unlike traditional finance and centralized Web3 exchanges, DeFi investors can use blockchain explorers to determine exactly where their assets are at any time. By allowing users to track their funds, companies can mitigate the risk of bank runs that may occur as soon as this trust is called into question. – Wolfgang Rückerl, ENT Technologies AG
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.