CeFi vs. DeFi - building it for the next billion users?

Next Billion Tech

To start the discussion, let’s demystify what centralized finance is. The present form of financial institutions is centralized, i.e., people or institutions manage the asset class and processes in some form of centralization of assets, e.g., banks. Banks are the perfect examples of centralized financial institutions - from deposit to lending, all the functions are performed centrally. 

A bank fundamentally allows people to safely deposit money that banks use to lend to good borrowers, charge interest to the borrowers, and give the depositors a piece of the pie.  To do all of these things, an entity named a bank has to go through lots of regulatory hoops and hurdles to pool money, create escrow accounts, get licenses, leading to creating misaligned incentives, geographic restrictions, and operational inefficiencies. This way of banking is very top-heavy and centralized, and hence we call it CeFi - Centralized Finance. 

Though there is a better way to create a banking infrastructure with almost zero to negligible cost that can be scaled across geographies, creating a borderless infrastructure for depositors and borrowers to interact, i.e. 

  • Depositors from high liquidity zones, i.e., developed nations where interest rates are almost close to zero, or negative in many cases and 

  • Borrowers from inefficient capital markets, where access to capital is a problem, i.e., emerging economies like India and Indonesia. 

We can do this by leveraging decentralized finance infrastructure on blockchain protocols like AAVE, Anchor, Terra, Compound, and many more. You can learn a bit more about various decentralized blockchain protocols and companies here. 

Though it’s not just banks, current fin-tech companies mainly use archaic centralized infrastructure, impeding growth and increasing the operational costs to reach out to the end consumer. I expect many of these companies will either adopt the hybrid structure, wherein the backend infrastructure of payment, lending, saving, and investment apps will use blockchain, or they go all decentralized. Otherwise, the survival of these growing fin-tech companies doesn’t look that promising compared to next-generation fin-tech companies built on blockchain from scratch. 

A few DeFi companies that are leveraging blockchain/ crypto assets to deploy in real-world are: 

  1. Maple - a corporate debt marketplace that enables institutions to borrow from Liquidity Pools funded by the DeFi ecosystem and managed by Pool Delegates.

  2. Centrifuge - an on-chain risk assessment and pooling infrastructure for borrowing against illiquid assets such as invoices, real estate, and commodities.

  3. Goldfinch - bring crypto loans to the real world

  4. Vauld - build Wealth Automatically With Crypto

  5. OnJuno - get your paycheck in crypto

The hybrid structures of DeFi and CeFi are pretty exciting and have been getting quite a lot of attention from venture capitalists, especially in the west. A few companies that caught my attention are as follows: 

  1. Fireblocks - hundreds of crypto and digital asset businesses use Fireblocks software and APIs to custody, manage treasury operations, access DeFi, mint & burn tokens, and manage their digital asset operations 

  2. Celsius - a platform of curated services that big banks have abandoned – things like fair interest, zero fees, and lightning-quick transactions

  3. BlockFi - the most accessible place to buy, sell and earn cryptocurrency.

The implications of DeFi infrastructure are pretty powerful for emerging economies like Indonesia and India. It will allow low-cost credit deployment for productive purposes, especially high-growth SMEs, cheap ways to operate saving accounts, and liquidity to the micro-finance institutions. I think it’s high time fin-tech entrepreneurs focusing on the next billion users try to build financial products for real-world use cases on blockchain/DeFi infrastructure, rather than archaic banking infrastructures in Indonesia and India. It will allow them to provide financial products to low-income and growing middle income at zero to negligible costs and transfer the benefits to the end-users. 

What do you think about the potential of DeFi/blockchain application in financial inclusion with respect to Indonesia and India? Where can it play a critical role - payments, lending, savings, investments, asset management, liquidity provider, etc.? I would love to hear from you. 


If you are building a DeFi startup or investing directly in DeFi protocols or startups, please do write to me. I would love to learn more from you and would be happy to help in any way.


"first followers" is founded by Sagar Tandon. You can reach out to me at sagar@firstfollowers.co.

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