What is CeFi?

One of the core concepts of cryptocurrencies is \"decentralization\"-it allows transactions between strangers around the world to be conducted without any intermediaries. DeFi(or decentralized finance) takes this concept to the extreme. It is an ecosystem of applications driven by smart contracts that makes it possible to borrow, save, trade, etc. -all without the need for any bank or payment processor to act as an intermediary.

But because DeFi is an emerging technology, it brings a unique set of risks. Navigating the DeFi protocol requires relatively strong technical knowledge and the ability to withstand the possibility of losing some or all of your investment due to code errors, malicious actors, or even simple user error.

CeFi, as you may guess, stands for \"centralized finance.\" The core idea of CeFi is to create cryptocurrency investment opportunities that combine some of DeFi\'s revenue advantages with some of the ease of use and security of traditional financial services products (sometimes referred to as TradFi). Through CeFi, you can borrow money, buy and sell cryptocurrency, spend with cryptocurrency debit cards, earn rewards, etc.

How to make money through CeFi?

CeFi creates the potential to generate revenue through cryptocurrency-based accounts that are functionally similar to traditional bank savings accounts-but may provide significantly higher returns. Unlike traditional savings accounts, cryptocurrency deposits currently do not qualify for government-backed FDIC or SIPC insurance, so you should make sure you understand the risks involved. However, Coinbase provides a principal guarantee for the USDC you deposit in CeFi loans.

The basic concept involves depositing some cryptocurrency on one of the many platforms that offer such products. With Coinbase, U.S. customers in many states can now join the waiting list and start earning 4% annual income by holding U.S. dollar coins (USDC).

Where do the benefits come from?

Some or all of your cryptocurrency assets are used to lend to others. These borrowers pay interest on the loan to a centralized provider, who transfers part of the interest to you.

How do CeFi loans relate to CeFi loans/savings?

CeFi allows you to borrow money using cryptocurrency assets as collateral, just as you use traditional assets as collateral to apply for a bank loan. This is the other side of borrowing-the interest paid by users on borrowing is the source of revenue you can get from holding cryptocurrency through CeFi.

Unlike bank loans, CeFi loans usually do not require much or no documents. Through Coinbase, U.S. customers in many states can borrow up to $100,000 without credit checks.

What are the risks of CeFi?

Each CeFi product and provider is unique and may use the cryptocurrency you deposit in ways with varying degrees of risk. It is important to research and understand for yourself how your cryptocurrency is used, how the benefits you earn are generated, and what risks are involved.

Remember: Cryptocurrency deposits currently do not qualify for government-backed insurance, which protects savings held by traditional banks. (However, Coinbase\'s CeFi lending products provide principal guarantees.)

Some centralized finance (CeFi) service providers will freeze your principal for a period of time. However, Coinbase allows you to access your USDC at any time.

Not all stablecoins are the same. For example, the USDC is based on open source code that anyone can review. The USDC is backed by dollar-denominated assets at least equivalent to USDC in circulation in the United States, which are held in separate accounts with regulated financial institutions in the United States. You can purchase USDC through exchanges such as Coinbase and hold it in any Ethereum compatible wallet. There is no fee to transfer U.S. dollars to USDC. The launch of USDC is a collaboration between Coinbase and Circle through the joint creation of the CENTRE Alliance.