Cefi Lending Platforms in Cryptocurrency Climes.







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Greetings Friends, I believe we all are fine. In this publication, I elucidated the settings of different centralized cryptocurrency lending platforms simultaneously with their generalized advantages and disadvantages.

Introduction.
Before going into the mechanics of Cefi Loans, we have to cross some T's in view of Defi and Cefi against being misunderstood of their respective concepts.

Hence, Defi in order words is known as decentralized financing, where the measures of its operation is based on automated processes, while Cefi's measures of operation is more centralized and probably may take time before certain things are authenticated in their tribune.

Having known this, let's observe the concept of Cefi Loan. This is simply a kind of loan where interested individuals would deposit a specific amount of their cryptocurrency as a collateral in response for a larger amount of token which could either be in stable coins or normal cryptocurrency.

Nonetheless, the cryptocurrency invention has witnessed a massive contribution from different developers and capable investors. Majority of individuals that are in trend with the lending system of the [blockchain@leoglossary/blockchain) no longer waste their time queuing in banks, filling forms and keeping up on bank managers to see the possibility in fast tracking their loans which came with high cost of collateral.

Although there are still other financial mediums in the blockchain financial modus-operandi like the defi system although this is quite distinct from the observation in centralized financing given to the fact that it's routine in the blockchain is highly decentralized although there might be atoms of centralization while dealing with the mainnet of those platforms.

Consequently, the centralized financial system has a real look of centralization based on virtual connotations and not physical operation since everyone can access those mediums despite one's geographical confinement.

There are many opportunities to lenders and borrowers despite the gap created by some voraciously greedy crypto developers and financiers. Hence we have observed failure in most projects like what happened to Celsius, a centralized lending platform which finally was rug pulled in June 2022.

In another vein, we would recall what happened to the Terra Luna same 2022 where the token was unpegged from the USDT according to reports leaving investors between the devil and the deep blue sea as they watched their hard earned money turning to an unexplainable instance.

Although there were many Cefi issues in 2022. We would recall the case of Voyager, a Cefi dais that froze its system given to the failure in cryptocurrency hedge funds and other financial abnormalities which affected the majority of the Cefi systems. Nevertheless, we also have a good number of them that have maintained their integrity over the years through the Cefi system like the case of NEXO and many others.

We would concede to the fact that the causes of a system failure is just an issue of liquid and liquidity issues arise when the respective pools of these platforms cannot meet with the demands of its customers but then, the Cefi system uses proof-of-reserves and the usual accounting method to mitigate against the issue of liquidity risk in their blockchain financial approach. Nonetheless, let's see a few of the underscored protocols below.

Some Centralized Crypto Lending Dais.

At this point, we'll be observing a few of the top echelon centralized exchanges.

Nexo.
This is a centralized dais that was founded in 2018 and has been in operation till date. This platform provides borrowers with some amount of credit while using their deposited funds as collateral. One could borrow designated fiat or possibly a stable coin based on demand and repayment options with a distinctive liquidity standpoint. For instance you can't borrow more than you have staked meaning that loan seekers in this platform are over-collateralized in terms of their loan to value.

This platform is a tier based system where their highest profiling members receive about 6.9% rate of interest from personal loan to value based on the ratio of their local token (NEXO) which participants have accumulated and other incentives. Finally, they use proof-of-reserve in providing evidence of participants' deposits in real time to the public.

You Holder.
This is a multi coin lending platform that has also been in existence since 2018 on like NEXO. Their loan to value ratios also differs as participants could borrow loans upto 50% of their deposited funds in the system. 26% of interest rate is charged for USDT and USDC loan while zero percent for loans in some other currencies like BTC. Nonetheless, this platform is also into yield farming that is paid out in USDT.


Some Bankrupt Cefi Platforms.

Nonetheless, we would concede to the fact that there are other Cefi platforms although these ones have gone bankrupt given their level of liquidity. Then, let's see some of these platforms below for further reference.

CelsiusThis Cefi platform was founded in 2018 but went bankrupt in 2022 given to unfavorable market volatility leaving about 1.7 million of its users stranded. Voyaga was yet another Cefi platform that also rug-pulled in 2022 given to the downtime experienced in 3AC hedge fund in June same year.


Vauld was also another Cefi platform that is based in Singapore. This platform got liquidated in 2022 given their inability to settle a debt of $402m to their customers. Nonetheless, they went further and filed for creditor protection from the court which expired on the 28th of April this year.

We also have blockfi a Cefi platform that got liquidated on the 28th of November 2022 but finally returned investors fund after being guided by the court. Finally, we have Bable Finance which rug pulled on the 17th of June 2022 just after Celsius bankruptcy. This Cefi company is based in Hong Kong. Currently, they are about taking another move to launch a similar platform to help them raise their creditors fund again as to pay off their $766m debt.

We've seen the existing and some of the bankrupt Cefi platforms, now let's take a deep dive into their advantages.



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Advantages of Cefi Platforms.

Fund Raising.
Cefi platforms as we have seen and witnessed over the years are good measures through which investors could raise funds while providing the needed positions of collateral to the platform.

Although the collateral base of the Cefi platforms tend to be very high given that an investors LTV position may consume more of his staked fund in the system by means of collateral but it's indeed a good measure in raising more fund especially when you spot a token that is set to pump or seriously on the increase. So one can increase his liquidity position by borrowing to invest in other fast growing tokens in times of market boom.

Flexibility
The Defi system tends to be flexible. Customers can easily borrow given to the volume of their collateral base. It doesn't take time to leverage ones already staked value in those platforms.

For instance, if an investor already staked $50,000 worth of BITCOIN, he can easily borrow about $10,000 for other investments while also earning returns from his already staked fund with the Defi platform.

Customer Friendly.
All Defi systems hold their customers in high esteem since they are fully aware that their position in business is given to the values those customers have provided.

It is easier to communicate with Cefi customer attendants that Defi customer services. No Cefi platform jokes with their customer even if such customer has an insignificant contribution to their platform.


Some of The Downsides of Cefi Lending Platforms.

Bankruptcy.
We have seen a good number of Cefi platforms that have rug-pulled leaving their customers in a state of dilemma. Liquidation in Cefi can be very easy especially when big Investors decide to unstake their invested funds from those platforms, this can lead to bankruptcy of the said platform.

High volatility can also cause the Cefi platforms to go bankrupt as we witnessed in 2022 when the cryptocurrency market took a strong bear trend, this strongly contributed to the liquidity risk faced by those platforms that led to their liquidations.

Cross-border Barriers.
Most of the Cefi platforms have border restrictions. They don't really have a larger coverage of customers when compared to their Defi counterparts. For instance, the Nexo platform and You Holder simultaneously do not extend its service to citizens of the US.

Hence, this would lead to low volume of liquidity to their respective pools given the fact that their services only cover a few regions.

High Interest Rate.
The interest rates of Cefi platforms are usually very high when compared to that of most Defi platforms. In this regard, Nexo charges about 6.9% to their major customers but this also varieties with the position of their LTV. For instance, if their high profiling customers' LTV goes below 20%, they'll be charged a 0% interest on the current loan.

Hence, the high interest rate in Cefi platforms may also discourage an investor from borrowing loans and if their rate of interest payable to investors is of little value, this may force Investors out of the platform to other high incentivizing Defi's or Cefi's systems.

Conclusion.
Cefi lending platforms are good and enticing mediums investors could leverage in increasing their level of investment overtime although precautionary measures must be put in place against losing one's funds.

Every Investment isn't without risk of liquidity. Hence investors are advised to always risk what they can bear to lose despite the wooing rate of incentive in those tribunes. Always make proper research about the state of any Cefi pool you wish to invest with. Finally this publication may not solely stand as a financial advice to everyone. Hence, you're at liberty to make further research on the underscored context, thank you.

Reference:

Leoglossary

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