CeFi meaning: what is centralised finance in crypto?
CeFi, short for centralised finance, means crypto services run by a company that holds customers' funds and keeps its own records, such as centralised exchanges and crypto lending platforms.
CeFi means centralised finance: crypto services run by a company. When you open an account on a crypto exchange, deposit coins and trade, the exchange holds your coins and tracks your balance in its own database, much as a bank or broker would. That is CeFi. Its opposite is DeFi, decentralised finance, where the same kinds of service (trading, lending, earning interest) run as code on a blockchain and you keep control of your own wallet. CeFi is easier to use; DeFi removes the middleman but leaves every mistake with you.
Key takeaways
- CeFi = a company holds your crypto. Centralised exchanges and lending platforms are the main examples.
- DeFi = code on a blockchain, your own wallet. No account, no company in the middle, no support desk.
- The trade-off is who you trust. CeFi asks you to trust a company; DeFi asks you to trust code and yourself.
What CeFi is
CeFi is crypto delivered the way traditional finance delivers services: through a business. You sign up, usually prove your identity, deposit money or coins, and the company does the rest. Common CeFi services are:
- Centralised exchanges, where you buy, sell and trade coins against an order book the exchange runs.
- Lending and yield platforms, where you deposit coins and the company lends them out or puts them to work, paying you interest.
- Custodians and brokers, which hold crypto on behalf of clients, including some forex and CFD brokers that let you trade crypto prices.
The defining feature is custody. In CeFi the company controls the private keys to the coins. Your balance is an entry in the company's records, a promise that it owes you those coins. The phrase "not your keys, not your coins" is a short warning about exactly this.
CeFi vs DeFi side by side
DeFi, decentralised finance, offers similar services without a company in the middle. Trades and loans are handled by smart contracts, programs that run on a blockchain such as Ethereum. You connect your own wallet, approve a transaction and the code does the rest.
| CeFi | DeFi | |
|---|---|---|
| Who holds the funds | The company | You, in your own wallet |
| Account and identity checks | Usually required | Usually none |
| Ease of use | Familiar apps, card payments, support staff | Wallets, network fees, more steps |
| Paying in from a bank | Yes | Not directly; you need crypto first |
| If something goes wrong | Support, possibly regulators and courts | Usually no one to call |
| Main risk | The company fails, freezes or misuses funds | Bugs, hacks, scams and user error |
Many people use both: CeFi to turn ordinary money into crypto and back, DeFi for things a company does not offer.
The risks of CeFi
CeFi feels safer because it looks like a bank, but most crypto companies are not banks and their customers rarely have the same protections. The main risks:
- Counterparty risk. If the company is badly run, overextended or dishonest, customer funds can be lost. In 2022 several large crypto lenders and a major exchange collapsed and froze withdrawals, leaving customers as creditors in long bankruptcy cases.
- Withdrawal freezes. A platform can pause withdrawals during stress, for compliance checks, or by order of a regulator.
- Hacks. Large exchanges hold large amounts of crypto, which makes them a target.
- Regulation. Rules for crypto companies differ by country and are changing. A service available today can be withdrawn from your country tomorrow.
The academy lesson custody risk: exchanges vs cold storage covers how to weigh this, and the hot wallet vs cold wallet page explains the self-custody side.
Choosing between CeFi and DeFi
There is no universally right answer, only questions to ask:
- Can you look after your own keys? Self-custody means guarding a seed phrase. Lose it and the funds are gone; share it and they can be stolen.
- What protections does the company offer? Is it licensed where you live? Does it publish proof of its reserves? Are customer funds kept separate from its own?
- Where does any yield come from? If a platform pays interest, ask how it earns it. A high rate with no clear source is a warning. See APR vs APY for reading quoted yields.
Frequently asked questions
What does CeFi stand for?
What is the difference between CeFi and DeFi?
Is CeFi safer than DeFi?
Is a crypto exchange CeFi?
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