There is a fascinating collection of paradigms in the blockchain world as there are two ways to build out new financial applications using blockchain. The first is CeFi, or centralized finance, and the second is DeFi, or decentralized finance. In DeFi, you only have to trust the protocol, but in CeFi, you must trust the company.
What is DeFi?
Within DeFi there is a constant stream of new protocols and ideas being launched and distributed across the internet. These tools are anonymous and unregulated. They can’t be controlled, but also, because of their anonymity, are limited in what they’re able to accomplish. But it would be good to keep in mind this space is evolving fast, and there’s a lot to still be explored.
For some examples:
- Kyber: A classic exchange that’s been remade to be decentralized.
- Totle: A liquidity tool with automatic pricing.
- MakerDAO: A fascinating protocol for using a decentralized oracle to soft-peg the value of the asset.
- Compound: A lending and borrowing tool.
- bZx: Another decentralized market.
- Augur: A free protocol for making bets.
- Nexus Mutual: A tool for decentralized insurance and exchange.
What is CeFi?
On the other side, CeFi represents the world of large companies that create particular cryptocurrencies or tokens and then build an ecosystem around them.
The significant limitation, though? You have to trust the company in a way that you don’t when using DeFi tools. The only reason you can build trust in these tools is because a company exists behind them that’s regulated by legacy financial systems and legacy governments.
For some examples of CeFi:
Binance: The world’s largest crypto exchange with futures, credit pools, exchanges, trading, and more.
Coinbase: offering a card, an exchange, and institutional trading.
Libra: An org by facebook attempting to apply social media’s market penetration to online banking with crypto.
Ledn: An insured Bitcoin to DAI lending and borrowing platform.
Where is Corda in this situation?
There are fascinating questions to determine here about which blockchains are genuinely private, public, anonymous, who controls their wallets, and who can provide enough liquidity. But our question today is where Corda fits into this divided landscape. The hard part about answering this is that Corda isn’t a part of either ecosystem. You could undoubtedly use Corda to implement something like a cryptocurrency or exchange, but it’s not the appropriate tool for that.
If we were to plot these two concepts on a line, Corda probably is closer to CeFi than DeFi, but that’s just a function of who it was built for. Corda is an infrastructure tool for any organization to stand up a blockchain infrastructure for themselves and use it privately however they please. That’s a very different use case than the public infrastructure model that regular blockchain products use. Within a corda network, you have to stand up the nodes yourself.
While it’s not made for DeFi or CeFi tooling, you can use Corda in many other use cases where you don’t need identity but can benefit from smart contracts governed by computers on a decentralized ledger:
- Insurance networks for tracking identity and double claims across insurers for the same accident.
- Tracking internet uptime to prorate internet bandwidth.
- Listing databases of international shipments.
- Using a ledger for distributed stock settlement across financial markets.
There are so many more use cases than just these, though, and I highly encourage you to go out there and build your own.
Happy coding ~