{"id":315844,"date":"2021-08-05T18:11:00","date_gmt":"2021-08-05T15:11:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/decentralized-and-centralized-finance-need-to-collaborate\/"},"modified":"2021-08-05T18:11:00","modified_gmt":"2021-08-05T15:11:00","slug":"decentralized-and-centralized-finance-need-to-collaborate","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/decentralized-and-centralized-finance-need-to-collaborate\/","title":{"rendered":"# Decentralized and centralized finance need to collaborate"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a29d6e41b7db\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a29d6e41b7db\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/decentralized-and-centralized-finance-need-to-collaborate\/#A_compromise_between_DeFi_and_CeFi\" >A compromise between DeFi and CeFi<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/decentralized-and-centralized-finance-need-to-collaborate\/#Benefits_for_DeFi_in_letting_CeFi_in\" >Benefits for DeFi in letting CeFi in<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/decentralized-and-centralized-finance-need-to-collaborate\/#DeFis_technical_financial_and_compliant_challenges\" >DeFi\u2019s technical, financial and compliant challenges<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/buradabiliyorum.com\/en\/decentralized-and-centralized-finance-need-to-collaborate\/#Results_and_terms_of_CeDeFi_cooperation\" >Results and terms of CeDeFi cooperation<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Decentralized and centralized finance need to collaborate <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDcvMzk1OTE2NjUtY2M1OC00MzVlLWEzNzgtNjcxZDM4YTllZTI4LmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-128018ef>Decentralized finance, or DeFi, has established itself as a force capable of disrupting traditional systems. While DeFi still mostly keeps opposing itself to traditional finance, the centralized operators are actively looking for ways to integrate into the established system. The institutional interest pushes both decentralized and centralized participants to ask questions about DeFi, its role and a possible collaboration with centralized finance, or CeFi.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>DeFi proved resilient during the March 2020 and May 2021 market crises<\/em><\/strong><\/p>\n<p>Of course, the situation isn\u2019t uniform for both centralized and decentralized institutions, but the main generic concerns are the following:\u00a0Can there even be a decent compromise?\u00a0Are there benefits for DeFi in welcoming CeFi?\u00a0Is DeFi capable of accommodating institutions?\u00a0What should be the results of CeFi\/DeFi cooperation to make the cooperation worthwhile?<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Decentralization vs. centralization: Where does the future lie? Experts answer<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"A_compromise_between_DeFi_and_CeFi\"><\/span>A compromise between DeFi and CeFi<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The CeDeFi concept might seem far-fetched to some: How can something be centralized and decentralized at the same time? For institutions and DeFi alike, however, CeDeFi might exactly be the way to solve the problems of both systems.<\/p>\n<p>The first thing to clarify is the intent of institutions. If the idea of centralized organizations getting closer to DeFi seems threatening, there\u2019s one thing to keep in mind: CeFi institutions want to enter DeFi exactly because it\u2019s decentralized. Banks, investment firms and hedge funds are interested in having a higher degree of autonomy. Sure, while profit increase might be a goal for some, CeFi is actually full of those who understand the truly revolutionary implications behind the <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a>. So, CeFi is more than h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>y to welcome DeFi\u2019s values, if there would be a way to achieve (at least) three things: 1) full compliance, 2) secure and reliable performance and 3) deep liquidity.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>CeFi and DeFi will finally meet in 2021 \u2014 Let&#8217;s hope they hit it off<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Benefits_for_DeFi_in_letting_CeFi_in\"><\/span>Benefits for DeFi in letting CeFi in<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Institutions work with governments, large companies, research foundations, etc. They have an infrastructure that\u2019s been impacting the lives of billions of people for hundreds of years. At the very least, cooperation with CeFi is an important step towards global adoption. Decentralized innovation doesn\u2019t have to be confined to the limited number of first adopters. There are other benefits, such as:<\/p>\n<ul>\n<li><strong>Preparing a favorable position for regulatory discussions<\/strong>. The market boom of 2021 predictably culminated in the highly increased interest of regulators. With DeFi handling a lot of capital (<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/defillama.com\/home\">around<\/a> $116 billion dollars in total value locked, or TVL), the need for a comprehensive legal framework is not just evident \u2014 it\u2019s a pressing one. How DeFi performs now in terms of security, investor protection, secure custody and development of beneficial use cases will influence the regulatory stance and impact the next years (or decades) for DeFi. Institutions have a lot of regulatory experience: The cooperation of CeFi and DeFi, in fact, is a practical case for auditing existing DeFi infrastructure. Institutions can point out things that don\u2019t sit well with legal requirements and help DeFi avoid making first-hand mistakes.<\/li>\n<li><strong>Scaling DeFi infrastructure<\/strong>. It\u2019s impressive that DeFi is now handling billions of dollars in such a short amount of time, but CeFi has been handing trillions for centuries. Institutions have mechanisms for working with large capital, whereas in DeFi, these methods are only emerging. DeFi is revolutionary in terms of tech, but CeFi is undoubtedly more experienced in responding to market and governmental pressures. These experiences and practices should be shared with the goal of improving both systems in the long run.<\/li>\n<\/ul>\n<p><strong><em>Related: <\/em><\/strong><strong><em>FATF draft guidance targets DeFi with compliance<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"DeFis_technical_financial_and_compliant_challenges\"><\/span>DeFi\u2019s technical, financial and compliant challenges<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In the outlined areas of compliance, reliability and liquidity, DeFi falls short. The absence of KYC and AML makes it impossible for financial institutions to assure the security of operations. Although some say that KYC and AML fail, it\u2019s worth remembering that these mechanisms were built as a response to highly dangerous threats such as global money laundering, tax evasion and credit risks. Institutions can\u2019t permit themselves to be engaged in non-verified operations, the risk is too high.<\/p>\n<p>Another institutional challenge is the large scale. Large trading volumes require deep liquidity and reliable infrastructure. DeFi should offer redundant technology (so that if one module fails, another is there to pick it up), large liquidity pools, and secure means of transactions and custody.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Blockchain will thrive once innovators and regulators work together<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Results_and_terms_of_CeDeFi_cooperation\"><\/span>Results and terms of CeDeFi cooperation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>DeFi should be the driver that initiates the collaboration. On a large scale, there are still a lot of aspects that institutional players do not understand about decentralization. CeDeFi cooperation should definitely be done on decentralized terms and with DeFi\u2019s initiative.<\/p>\n<ul>\n<li>DeFi players should be set on adhering and protecting decentralization values as much as possible, as long as it\u2019s fully compliant.<\/li>\n<li>DeFi teams should have the full authority to build technology according to the best design and development standards. No pressure from centralized players.<\/li>\n<li>The end goal is always global accessibility and reduction of gatekeepers. DeFi shouldn\u2019t accept partnerships that would trade out these values.<\/li>\n<\/ul>\n<p>Regardless of its size and experience, CeFi should choose the road of contributing, not interfering. Institutions can share experience, a legal network and established management practices. However, it\u2019s important to respect DeFi\u2019s ways of doing things. As soon as those yield compliance, security and liquidity for financial operations, institutions should not push for additional gatekeeping and centralization.<\/p>\n<p>So, CeDeFi, a new financial system, should be built with these values in mind. DeFi leads, CeFi contributes \u2014 that\u2019s the right order. It\u2019s time that both systems work not against each other, but together and with the goal of improving global financial markets.<\/p>\n<p class=\"post-content__disclaimer\"><em>This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.<\/em><\/p>\n<p class=\"post-content__disclaimer\"><em>The views, thoughts and opinions expressed here are the author\u2019s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>James Taylor<\/strong> is the chief business development officer at Unizen, a smart exchange ecosystem. James is an established capital market expert with over 20 years of work experience. Before joining Unizen, James was global head of electronic foreign exchange sales at BNY Mellon and spent eight years at JP Morgan Chase in a variety of roles, his last held position was head of fixed income currency and commodity (FICC) market structure. He also worked at Deutsche Bank, Barclays Capital and Salomon Brothers.<\/div>\n<\/div>\n<p><template data-name=\"subscription_form\" data-type=\"defi_newsletter\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/decentralized-and-centralized-finance-need-to-collaborate\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Decentralized and centralized finance need to collaborate &#8221; Decentralized finance, or DeFi, has established itself as a force capable of disrupting traditional systems. While DeFi still mostly keeps opposing itself to traditional finance, the centralized operators are actively looking for ways to integrate into the established system. The institutional interest pushes both decentralized and&#8230;<\/p>\n","protected":false},"author":1,"featured_media":315845,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDcvMzk1OTE2NjUtY2M1OC00MzVlLWEzNzgtNjcxZDM4YTllZTI4LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74859,74894,74983,74868,75238,88323,75141,70934,4965],"class_list":["post-315844","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-aml","tag-blockchain","tag-decentralization","tag-defi","tag-financial-services","tag-financial-systems","tag-kyc","tag-regulation","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/315844","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=315844"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/315844\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/315845"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=315844"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=315844"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=315844"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}