Bounce Research: What is CeDeFi?

The CeDeFi narrative has emerged and attracted more and more attention, positing that the combination of CeFi and DeFi offers a robust framework to enhance the growth and sustainability of cryptocurrency markets. Despite some skepticism surrounding this initiative, proponents argue that harnessing the strengths of both CeFi and DeFi could carve out a new path, optimizing returns and benefits for all parties involved. So, what is CeDeFi and is it worth exploring?

Background

Web3’s foundational principle of “decentralization” facilitates global transactions between individuals without intermediaries or centralized authority. Decentralized Finance (DeFi) embodies this principle by creating an ecosystem of smart contract-based protocols and infrastructures that enable activities like lending, saving, and trading directly on the blockchain, bypassing traditional financial intermediaries such as banks. This decentralized nature of DeFi offers a broad spectrum of financial opportunities accessible to anyone with an internet connection. Additionally, blockchain technology enhances transparency since all transactions are publicly recorded and traceable on-chain.

Nevertheless, DeFi’s development has encountered significant obstacles. While decentralization eliminates intermediaries, it also leads to fragmented liquidity due to a market saturated with numerous, often redundant, platforms. This fragmentation can reduce user returns and confidence in DeFi, causing its prominence to wane in recent discussions. Furthermore, individual users often find DeFi protocols complex, requiring substantial technical expertise and comfort with potential risks such as fraudulent activities, technical insufficiency and user errors, which can result in partial or total investment loss.

Centralized Finance (CeFi) operates on the premise of offering crypto investment opportunities that blend the high yields of DeFi with the ease of use and security found in traditional financial services. Examples include centralized exchanges (CEXs), custodial services, and regulated financial institutions. These platforms allow users to earn returns through crypto accounts similar to traditional bank savings accounts but often with higher yields.

Compared to decentralized exchanges (DEXs), centralized exchanges typically attract higher and concentrated liquidity, resulting in more efficient trading, better pricing, and faster transactions.CeFi also offers comprehensive asset management services, such as delta-neutral strategies. However, these advantageous rates and sophisticated services are usually available only to high-net-worth clients, limiting access for individuals without substantial financial resources.

Both CeFi and DeFi have distinct strengths and limitations, which can leave traders and investors feeling that neither system fully meets their needs. CeFi offers substantial liquidity and robust security measures yet often restricts access to its most lucrative opportunities to VIP clients. On the other hand, DeFi provides better accessibility and transparency but faces challenges like fragmented liquidity and repetitive narratives.

Recognizing these limitations, forward-thinking innovators proposed an integrated approach that leverages the advantages of both CeFi and DeFi. And that gave birth to the concept of CeDeFi.

What is CeDeFi?

The CeDeFi initiative observed in the current Web3 space seeks to enhance the efficiency and profitability of DeFi solutions by leveraging the high concentrated liquidity found in CEXs and integrating asset management and custodial services. The ultimate objective is to maximize gains for traders and investors while promoting the sustainable growth of crypto markets.

As a relatively new and experimental concept, CeDeFi is being explored through more and more projects that embody its principles and seek to demonstrate the potential of CeDeFi as a viable solution to create a more robust and inclusive financial ecosystem.

Case 1: BounceBit Pioneers a CeDeFi Infrastructure

BounceBit is building a CeDeFi infrastructure offering accessible asset management and yield generation services, driven by the goal to democratize access to institutional-grade high-yield opportunities. Some highlights of their CeDeFi solutions include:

• Liquid Custody: BounceBit introduces the Liquid Custody solution that enables staked assets to be utilized in yield-generating activities. Backed by Ceffu, an institutional custody platform, BounceBit secures users’ deposits with Ceffu’s custody solutions and gives users in return Liquid Custody Tokens (LCTs) representing their deposits on a 1:1 basis. Users can then use LCTs to participate in restating or yield-farming activities.
• Funding Rate Arbitrage strategies for BTC and USDT: Funding Rate Arbitrage is a trading strategy that profits from the net difference in funding rates while maintaining a delta-neutral position. BounceBit leverages MirrorX by Ceffu, an off-exchange settlement solution that mirrors users’ CEX account assets, reducing counterparty risks while providing users with access to deep liquidity. Collaborating with prominent asset managers, BounceBit enables users to stake BTC/USDT and select their preferred Funding Rate Arbitrage strategy for high APR.
• BounceBit Easy: Instead of depending APR on the asset manager that a user selects, BounceBit Easy offers 30-day fixed yield generated through delta-neutral Funding Rate Arbitrage with super simple and user-friendly interface.
• BounceBit Superfast: Leveraging the deep liquidity in CEXs, BounceBit is developing their on-chain brokerage Superfast designed to facilitate efficient trading of BounceBit assets including their native token BB and their Liquid Custody Tokens (BBUSD & BBTC which mirror users’ USDT & BTCB in custody).

Case 2: MBA Introduces CeDeFi Mining

MBA introduces a CeDeFi platform designed to maximize compounding gains for traders through the innovative approach called CeDeFi Mining. MBA’s CeDeFi Mining seeks to encourage liquidity contribution to prominent CEXs like Binance and leverage the concentrated liquidity with DeFi’s liquidity mining concept to boost yield for users.

To participate in CeDeFi Mining, users are required to bind their Binance API to MBA allowing MBA to only read their transactions on Binance. Users are then encouraged to trade on Binance and contribute to enhancing liquidity which ultimately leads to more rewards back to users.

Upon MBA CeDeFi Mining’s upcoming launch, Bounce Brand is collaborating with MBA to offer an $AUCTION prize pool for users who bind their Binance API to MBA and trade$ AUCTION on Binance.

Looking Ahead

The exploration of CeDeFi represents a compelling experiment that envisions a prosperous future for crypto markets by uniting the strengths of both CeFi and DeFi. While some argue that CeDeFi deviates from the original goal of decentralization, others believe in its potential to stimulate a healthy cycle of market growth and prosperity. The key question remains whether CeDeFi approaches can effectively leverage the liquidity concentrated in CeFi to drive continuous innovation and maximize trading gains.

About Bounce Brand

Bounce Finance is a decentralized platform dedicated to innovating and fulfilling the evolving needs of the Web3 space. Established in 2020, Bounce Finance is known for offering Auction-as-a-Service, an onchain auction protocol empowering Launchpad services and permissionless auctions for tokens, NFTs and RWAs.

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