DeFi vs CeFi: the core difference
The fundamental difference between DeFi and CeFi is custody. In CeFi, a company holds your funds. In DeFi, a smart contract holds your funds. This single difference cascades into every other distinction.
Comparison table
| Feature | DeFi | CeFi |
|---|---|---|
| Who holds funds | Smart contract | Company |
| Transparency | Fully on-chain | Opaque |
| KYC required | No | Yes |
| Counterparty risk | Code risk | Company risk |
| Yield source | Protocol fees | Company operations |
| Withdrawal limits | None | Possible |
| 24/7 operation | Yes | Often no |
| Bankruptcy risk | No | Yes |
The CeFi collapse of 2022
The 2022 crypto bear market saw multiple CeFi platforms (Celsius, BlockFi, Voyager) freeze withdrawals and file for bankruptcy, with users losing billions. DeFi protocols with renounced contracts and locked liquidity continued operating normally — the code doesn't go bankrupt.
When CeFi makes sense
CeFi is appropriate for users who want:
- Customer support and account recovery
- Fiat on/off ramps
- Regulated, insured products
- Simpler interfaces
When DeFi makes sense
DeFi is appropriate for users who want:
- Full custody of their funds
- Transparent, auditable operations
- No withdrawal limits
- Access without KYC