DeFi and CeFi Differences

Source : https://www.coindesk.com/learn/defi-vs-cefi-in-crypto/

Risk of DeFi and CeFi

Both DeFi and CeFi are related to each other. Although they have their own respective excess, they cannot avoid financial risk.

For example, It’s just happened recently in May 2022.

Terra Protocol, a blockchain that produces algorithmic stablecoins with TerraUSD (UST) as the main stablecoin. One of the most used DeFi applications on Terra blockchain is Anchor Protocol, a decentralized savings account, which is promises high “interest”.

LUNA (Terra blockchain coin) crash 100% to the level 0.0002 USD, It’s happened due to the stablecoin algorithmic system which forces Terra to continuously create new LUNA to keep the value of UST (Terra stablecoin) at $1.

Three Arrows Capital (3AC), invested in Terra and borrowed billions dollars worth of crypto from various CeFi companies. CeFi companies trust 3AC and provide loans without adequate collateral. When the crypto market crashed, 3AC was unable to repay the loan and also affected all of the CeFi companies.

Read Also : The Worst Crypto Coins in History

References

DeFi vs. CeFi: Comparing decentralized to centralized finance, Cointelegraph
Ekin Genc, DeFi vs. CeFi in Crypto, CoinDesk