CeFi
Centralized Finance — crypto financial services operated by a company that holds custody of user funds. CeFi lending platforms like Nexo and Ledn offer interest accounts and crypto-backed loans.
You hand your crypto to a company. They lend it out, pay you interest, and give it back when you ask. That's CeFi in one sentence — and that last part, "give it back when you ask," is where the whole model lives or dies.
CeFi platforms sit between you and the crypto lending market the same way a bank sits between you and the bond market. You don't pick the borrowers, set the rates, or see where your funds go. You trust the company to do that — and in exchange, you get a simpler experience and often a fixed yield.
How It Works
When you deposit crypto with a CeFi lender, the platform takes custody — meaning they control the private keys, not you. They pool deposits, lend them to institutional borrowers or retail clients, and pay you a share of the interest. The rate you see is what the platform decides to pass along, not a direct market rate.
Borrowing works the same way in reverse. You pledge crypto as collateral — say, $10,000 in BTC — and the platform lends you cash or stablecoins against it, typically at 50–70% LTV (loan-to-value). If your collateral drops below the required threshold, the platform liquidates it to cover the loan. No negotiation, no grace period.
The platform sets every term: interest rates, LTV limits, liquidation thresholds, withdrawal windows. You agree to those terms when you sign up, and they can change them. Read the terms of service before you deposit, not after.
Why It Matters
CeFi is the on-ramp most people actually use. It's easier than DeFi, it has customer support, and it accepts fiat. For someone who wants yield on idle crypto without learning how liquidity pools work, it's the practical choice.
What is DeFi?
Decentralized Finance — financial services built on blockchain smart contracts that operate without intermediaries. DeFi lending allows users to lend and borrow directly through protocols rather than banks.
Full glossary entryThe tradeoff is counterparty risk — the risk that the company itself fails. In DeFi, a smart contract holds your funds and the code is public. In CeFi, a balance sheet holds your funds and you're trusting management decisions you'll never see.
Bill's Take
In 25 years of mortgage lending, I watched banks intermediate billions in loans and depositors never thought twice about it — because the FDIC backstop meant the bank's failure wasn't their problem. CeFi platforms offer no equivalent backstop. The yield looks like a savings account. The risk profile does not.
What to Watch
The biggest misread in CeFi is treating a high yield as a signal of safety. It's often the opposite. A platform offering 10% on Bitcoin is taking on more risk to generate that return — riskier borrowers, more leverage, less liquid assets. The yield is compensation for risk you may not fully see.
What is Counterparty Risk?
The risk that the other party in a financial transaction will fail to meet their obligations. In CeFi lending, counterparty risk means the platform could become insolvent and you lose your deposited funds.
Full glossary entryWithdrawal Risk
CeFi platforms can freeze withdrawals without warning — and they have. When a platform hits liquidity trouble, the first thing it does is lock the exits. By the time you hear about it publicly, it's usually too late to get out. Never keep more on a CeFi platform than you can afford to lose access to.
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