Divi's goal is to provide a wide variety of cryptocurrency solutions to everyone, everywhere. What would a "Divi Everywhere" initiative be without an option to participate in decentralized finance (DeFi)?

The benefits and simplicity of Divi's layer-1 staking are already established. Divi's DeFi protocol will present additional earning opportunities and future-proof the entire Divi ecosystem. To ensure everyone has the knowledge and resources they'll need to navigate the new platform, we will share some information in a progressive series leading up to the public release of Divi DeFi.

Let's start with some basics: Centralized (CeFi) vs. Decentralized finance (DeFi).

CeFi - Centralized Finance

In recent years, large corporations leveraged the power of blockchain to create new financial service offerings in the cryptocurrency space. These companies attempted to bridge the gap between traditional finance (TradFi) and cryptocurrencies and offered services like borrowing, lending, trading, and more.  

Major companies such as Celsius Network, BlockFi, Voyager, Nexo, and others emerged, creating a potential for earning yield via crypto-based accounts that are functionally similar to a traditional bank's savings accounts — but often promise substantially higher returns. Unlike conventional TradFi savings accounts, crypto deposits aren't eligible for government-backed FDIC insurance, which adds risk to the user.

Although CeFi positioned itself in the crypto industry as a safer solution, the experiment failed terribly. In 2022, billions of dollars were misappropriated and lost when the major players of CeFi collapsed under the weight of their irresponsible speculation, uncollateralized loans, and market manipulation. Millions of users discovered overnight the risk of exchanging privacy and asset custody for potential yield.  

As CeFi vendors sequentially declared bankruptcy, customer assets have been tied up in court proceedings, and customer details have been publicly disclosed.

CeFi risks:

• Users forfeit self-custody and keys for claims of "easier" crypto banking services.

• Margin calls on crypto loans can lead to entire portfolios being liquidated.

• Asset withdrawal freezing without notification or recourse

• KYC and AML data that is not protected can expose confidential user information

• Complex terms of services can distort asset ownership rights 

• The bankruptcy of the company can result in an inability to access funds 

DeFi - Decentralized Finance

Contrary to our traditional financial system, which runs on infrastructure managed by a central party, DeFi is powered by code on peer-to-peer networks and allows direct control of your assets. 

By leveraging smart contracts, decentralized applications (dApps), and liquidity pools, DeFi creates an ecosystem where everyday people gain access to lending, borrowing, and yield farming (liquidity mining). This technological advancement enables DeFi developers to launch financial protocols and platforms that are available to anyone globally with an internet connection.

DeFi is a significant paradigm shift in financial infrastructure design which presents several advantages and opportunities on which Divi is building. The revolutionary breakthrough of DeFi is that crypto assets can now be used in ways not previously possible with fiat or TradFi assets. Decentralized exchanges (DEX), synthetic assets, and crypto-based loans are remarkable applications that can only exist on blockchains.

DeFi advantages:

• Self-Custody: By using Web3 wallets like MetaMask to interact with permissionless financial applications, DeFi market participants keep custody of their assets and control their personal data.

• Permissionless: Unlike traditional finance, DeFi is defined by its open, permissionless access: anyone with a crypto wallet and an Internet connection, regardless of location.

• Programmability: Highly programmable smart contracts automate execution and enable the creation of new financial instruments and digital assets.

• Immutability: Tamper-proof data coordination across a blockchain's decentralized architecture increases security and auditability.

• Near-instant: dApp execution occurs immediately without reliance on third parties

• ROI (Returns on investment): Rates often exceed those available in TradFi

• Open source: Full visibility into the code base is often more secure and a standard ethos of cryptocurrency.

CeFi and DeFi both aim to offer similar attractive financial services. However, they are very different. The failed CeFi experiments highlight the necessity to build on the DeFi solution and remain faithful to the fundamental design and ethos of Divi: Crypto Made Easy without sacrificing self-custody. 

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Next: Centralized Exchanges (CEX) vs. Decentralized Exchanges (DEX)