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CeFi vs DeFi: What is the Future of Regulated Online Gambling?
By Shane Addinall Sep 04, 2022 OpinionBlockchain-based financial solutions offer users exciting options in igaming, but are some options wiser than others and what does the CeFi vs DeFi debate mean for remote wagering?For many citizens of our blue planet, the term blockchain doesn’t mean much, although most people in the 21st century have encountered cryptocurrency. Whether it is through headlines about another volatile change in Bitcoin’s market value, Elon Musk’s Tweet that affected the crypto market, or because they dabble in crypto investment, a large percentage of internet users know about crypto.
The latest buzz in the cryptocurrency world is the differentiation between Centralised Finance (CeFi) and Decentralised Finance (DeFi). Both exist on the blockchain, but essential details make the one more favourable for crypto gambling.
CeFi vs DeFi
The idea of centralised finance is ancient as it relates to accepted currency as a means of exchange and this tradition dates back to the earliest civilisations. From trade, currencies evolved into those that have intrinsic value, namely commodities, and others that have imputed value, namely fiat currencies. The value of these relies on centralised institutions, and through their centralised governance, they present stability.
Although blockchain-based currencies, also known as cryptocurrencies, do not work through central banks or traditional financial institutions, centralised exchanges exist where all crypto trading transpires. That is, until recently. Centralised exchanges (CEXs) like Binance, Coinbase, and Kraken offer users transactional support when purchasing and trading cryptocurrency.
DeFi, on the other hand, has true open-source features, including permissionless transactions. Essentially, DeFi is what the creators of blockchain coins intended for the users. Three characteristics distinguish DeFi from CeFi. Decentralised finance provides transparency, control, and accessibility.
Both crypto services have their pros and cons, and most coins are available on either, so which works better for crypto gambling?
What are the Stakes?
Blockchain transactions are meant to open a community-based trade system in the digital world, and this is where DeFi solutions may overtake CeFi and their CEXs, which most traders know by now. DeFi is the permissionless, community-based dream from crypto developers, but this makes it a highly volatile space and difficult to navigate for most consumers.
CeFi, and specifically stablecoins backed by proper collateral, offer users more reliable options and much greater fiat conversion flexibility. Stablecoins have much lower volatility, allowing for greater exchange possibilities that make it easier for service providers to accept these digital coins. Examples of popular stablecoins are fiat-backed coins and commodity-backed coins.
The DeFi subset of digital assets offers a distinct advantage to users, and that is the code-based smart contracts. Smart contracts allow users to take full responsibility for their crypto assets. The non-custodial decentralised currency space is increasingly attractive to tech-savvy investors, but the risks of the community-controlled assets include volatile market value and service providers are apprehensive to accept tokens from DeFi sources.
But Crypto Crashed?
The crypto collapse earlier this year severely scarred the reputations of CeFi platforms and the events from May 2022 left an unpleasant taste in many people’s mouths. It proved the importance of solid collateral, and that supply and demand must determine dynamic rates.
While the argument continues in the digital currency world, DeFi has a way to go before offering players reliable options for wagering. Cryptocurrencies, regardless of their category, remain a gamble but, right now, those with collateral backing on CeFi have the best odds.
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