Despite the prolonged down market, the rate of crypto and blockchain adoption keeps growing across the industry. As of today, more than 300 million people globally own and use cryptocurrencies. Over 18,000 companies accept crypto payments for their products or services.
Crypto profitability is considered one of the boosting factors for mass adoption. Today, users realize that HODLing coins is just one strategy – but not the most high-yield one by far. To grow their digital wealth more substantially, they can lend their assets, borrow finances against crypto collaterals, stake tokens, or take part in yield farming.
Yield is the core driver of the crypto-economy. It helps users maintain financial stability even during a bear market. However, there are critical flaws in the current asset management models in yield farming.
To better understand these issues and find a solution, we first have to compare CeFi and DeFi yields.
Yields in CeFi and DeFi: pros and cons
Two types of platforms offer crypto yield services: CeFi (centralized finance) and DeFi (decentralized finance).
Security vs. flexibility and volatility
As a rule of thumb, CeFi is safer and more reliable, while DeFi offers a chance to get higher profits while featuring high risks and volatility.
When one stakes their crypto on CeFi such platforms, it is lent out to individual borrowers with fixed repayment rates. It creates a good financial cycle, which, in turn, contributes to the stability of the model. DeFi platforms, on the other hand, mostly use variable rates (non-fixed rates), which can change depending on the liquidity pool size or the token emission rate.
To better understand the risks of DeFi, consider the following scenario. As a platform gains popularity, more lenders rush to it to earn a higher yield (better rewards). So, the amount of liquidity in liquidity pools will spike, and as a result, rewards will plunge.
This won’t happen on a CeFi platform, where the interest rates are fixed. The platform can maintain the latter by sacrificing its capital or limiting the deposit amount for lenders.
Add to that the overall complexity and volatility of DeFi, and it becomes evident why it proves harder to onboard new users for decentralized finance.
Still, certain drawbacks to the current CeFi model indicate an upgrade is long due – and we will review those in the paragraphs below.
Centralized finance yields in need of a reboot
In the current model, CeFi platforms are forced to spread their capital between different asset types to maintain a fixed interest rate. This includes various DeFi protocols, liquid assets (stablecoins), and long-term crypto-institutional loans (3AC). However, if a black swan event happens to some of these asset classes, centralized platforms risk losing a big chunk of their capital and putting the user funds and their portfolios at risk.
On top of that, there’s the issue of trust. Using a centralized platform, you’re ultimately entrusting your assets to a third party, which retains full control over them. On a DeFi platform, you’re the only one in control over your private keys and wallets.
Indeed, CeFi provides numerous opportunities for sustainable investments in the crypto world. Its fixed and high-interest model can help users to gain premium yield, which would not be possible with DeFi, and maintain financial stability.
However, the issues mentioned above can pose significant risks to your assets. The transparency offered by decentralized platforms is something CeFi can benefit from adopting. I believe the solution is taking the best of the two words – and merging them into CeDeFi.
CeDeFi: mass crypto adoption through innovation
Combined, CeFi and DeFi models can create a more exciting scope for users and, at the same time, minimize the risks.
CeDeFi bridges the gap between centralized and decentralized models. Through adopting the latter’s transparency, it lets users know how their assets are managed, while keeping them informed on associated risks and rewards.
Midas Investments is a prime example of how this model can drive exceptional yields. The platform leverages flexible CeDeFi strategies adapted to different market conditions to provide higher interest rates for its users while maintaining full transparency in investments and risks.
The platform uses DeFi and algorithms as basic blocks to keep investment strategies transparent and make viable risk projections. A CeFi layer goes on top of this foundation to keep the traditional model of lending and borrowing intact.
To understand this hybrid model better, let’s look at how Midas effectively uses CeDeFi strategies.
CeDeFi: Investment strategies reimagined
Midas provides a wide range of transparent strategies to achieve premium yield. The first one is single-asset staking. With this strategy, investors can earn higher yields on large-capital assets like BTC and ETH. They can potentially make up to 12.8% APY on these assets while the project team manages and controls the risks.
The proprietary Yield Automated Portfolio (YAP) strategy includes a group (or a pool) of equally-weighted digital assets. It is similar to ETFs (exchange-traded funds) provided in the stock market. Investing in YAPs allows users to diversify their investments across multiple crypto assets, thus minimizing the risks.
CeDeFi investment strategies is a hybrid model built for specific market cycles, allowing investors to choose the strategy closest aligned with their investment philosophies. The CeDeFi model will serve as a bridge between CeFi and DeFi, allowing for account creation and fund management for investors participating in DeFi. Each of these strategies boasts attractive ROIs while demonstrating resiliency through different market cycles – bullish or bearish.
CeDeFi: Summing up
CeDeFi has the potential to change the crypto industry, solve some of the most pressing issues, and drive mass adoption of digital assets. The controlled yet transparent model can allow platforms to generate more sustainable passive income for the crypto community. Moreover, CeDeFi is compelling for institutional investors due to its security and scalable orientation. It offers a robust solution for bringing more security and control to the suite of DeFi products.
Going forward, users who want to earn through crypto will have the opportunity to mitigate risks using CeDefi solutions that will generate yields through hedging DeFi strategies. As a result, CeDeFi is rising due to the greater accessibility and seamless deployment. So, investors enjoy access to opportunities that generate APYs by investing in handpicked products and services that best meet their goals.
About the author
Iakov Levin is the CEO of Midas.Investments, a CeDeFi platform for staking core crypto assets and DeFi tokens. Since 2018, Midas.Investments has grown from a Discord Server to a bridge of CeFi and DeFi for long-term wealth generation with $200M under management and 7K active investors.
In compliance with the Trust Project guidelines, this opinion article presents the author’s perspective and may not necessarily reflect the views of BeInCrypto. BeInCrypto remains committed to transparent reporting and upholding the highest standards of journalism. Readers are advised to verify information independently and consult with a professional before making decisions based on this content.