CeFi, which stands for Centralised Finance, pertains to cryptocurrency platforms where companies oversee user funds for you. In contrast to self-custody wallets, centralised finance platforms such as exchanges and custodians manage your private keys. These platforms provide trading, lending, staking, and fiat conversion services via an intuitive and accessible interface. Grasping the fundamentals of CeFi is essential at this moment as institutions make their way into the market and regulations continue to develop.
This guide outlines the workings of CeFi, its associated risks, and the circumstances under which it is preferable to utilise it in comparison to DeFi alternatives.
How CeFi Works
CeFi platforms operate using a custody model in which the exchange holds users’ private keys. When users deposit cryptocurrency, the assets are stored in custodial wallets managed by the platform. The company controls order books, executes trades, and processes withdrawals, allowing for faster transactions and simpler interfaces than many blockchain-based alternatives.
Typical CeFi services include spot trading, margin trading, lending programs, and staking as a service. Many platforms also offer fiat on and off ramps that make it easy to convert between traditional currency and cryptocurrency. These features make CeFi the main entry point for new participants in the market. However, users must rely on the platform to protect their assets, which introduces an element of custodial risk.
A standard user journey involves completing KYC verification by submitting identity documents, depositing funds, trading or earning interest through platform services, and withdrawing when needed. This process resembles traditional online banking, but with cryptocurrency instead of fiat. The platform handles security, asset custody, and transaction processing, giving users access to a streamlined experience through an accessible interface.
CeFi vs DeFi
The key distinction is who controls your assets and how transactions are handled. CeFi platforms take custody of user funds and demand trust in the company. DeFi protocols allow you to keep control by utilising self-custody wallets and smart contract programming. This distinction influences security, user experience, regulations, and pricing.
Feature | CeFi | DeFi |
Custody | The platform holds keys | You hold keys |
Trust Model | Trust the company | Trust the code |
User Experience | Simple, familiar | Technical, complex |
Regulation | Heavily regulated | Minimal regulation |
Speed | Instant | Depends on blockchain |
Fees | Fixed, transparent | Variable gas fees |
Support | Customer service available | No support |
Fiat Access | Yes | No |
CeFi excels at regulated, user-friendly crypto market access, complete with customer service and fiat integration. However, users give up self-control and face counterparty risk. DeFi provides permissionless access and complete control, but it requires technical understanding and exposes you to smart contract risks.
Market Snapshot & Trends
DeFi lending reached $26.47 billion in Q2 2025, a 42% increase from the previous quarter and nearly 60% of the total lending market. CeFi lending recorded $17.78 billion in the same period, growing 14.66% but still trailing DeFi by a wide margin. This gap highlights the stronger growth of decentralised protocols and a rising preference among users for transparent, code-based lending systems over traditional intermediaries.
Tether leads the CeFi lending sector with a 57.02% market share and $10.14 billion in open loans. Nexo holds 11.01% with $1.96 billion, and Galaxy Digital accounts for 6.23% with $1.11 billion. Together, these firms make up 74% of total CeFi lending. Such concentration increases systemic risk because financial stress in any major firm can affect the entire market.
Institutional involvement is expanding as established financial institutions enter crypto custody and trading. Clearstream launched custody services for Bitcoin and Ethereum in April 2025. Standard Chartered began spot crypto trading in July 2025 and plans to offer custody services in Hong Kong by January 2026, reinforcing the legitimacy of regulated digital asset services.
Risks of CeFi
Security incidents persist as the most prominent risk in CeFi, continuing to trouble the industry. In the first quarter of 2025, $1.64 billion was stolen across 40 incidents, with CeFi representing 94% of the total losses. The Bybit hack resulted in a loss of $1.46 billion. By mid-2025, losses in the crypto sector surpassed $2.47 billion, with wallet compromises accounting for $1.7 billion in losses from only 34 incidents. These breaches demonstrate that centralised platforms continue to be prime targets for sophisticated attackers.
The key factors contributing to security failures:
- Compromised private keys: Hackers have obtained access to master keys that control user funds.
- Insider threats: Employees may misuse credentials or steal assets when given access.
- Weak API security: Inadequate API controls were responsible for 27% of breaches in centralised exchanges.
- Outdated authentication: In 2025, weak 2FA systems resulted in a 32% rise in account takeovers.
- Poor access controls: Unauthorised employee access contributed to 11% of exchange hacks.
Counterparty and liquidity risk remain major concerns, especially after the 2022 failures of lenders such as Celsius and BlockFi. When centralised platforms collapse, users can lose billions with no recourse. CeFi services can freeze withdrawals, become insolvent, or mishandle custodial funds, since operations depend entirely on the company’s financial health and governance. In contrast, DeFi relies on autonomous smart contracts that reduce reliance on human decision-making.
Regulatory risk is also significant and varies across jurisdictions. Platforms may face abrupt shutdowns, service restrictions, or new compliance requirements that disrupt operations. KYC and AML rules add friction for users but also help legitimise the sector. Growing regulatory clarity in regions like Europe and countries like the UAE and Singapore supports institutional participation, although it often reduces user privacy.
A Practical Checklist on How to Use CeFi Safely
Protecting your assets on CeFi platforms requires following security best practices. These steps significantly reduce your risk exposure:
- Use regulated exchanges operating legally in your jurisdiction with proper licenses
- Enable 2FA and withdrawal whitelisting on your account immediately after signing up
- Prefer exchanges with proof-of-reserves or regular audits by reputable firms
- Use hardware wallets for long-term holdings. Move crypto off exchanges after purchasing
- Keep only small trading amounts on exchanges and custody the rest offline
- Check insurance coverage, but understand its limitations (usually covers only hot wallet losses)
- Understand product risks for margin, lending, and staking (lockup periods and counterparty risk)
Following these guidelines doesn’t eliminate risk entirely, but it substantially reduces your exposure to common security failures and platform insolvency.
CeFi Vs DeFi: Which is Better When?
Most experienced cryptocurrency users utilise a hybrid technique. They use CeFi for fiat conversion and active trading, but keep long-term holdings in self-custody wallets. This strategy strikes a balance between convenience and security.
Use CeFi when you need:
- Fiat currency on/off ramps for converting between traditional money and crypto
- Customer support and account recovery for lost passwords or transaction issues
- Simple onboarding without technical blockchain knowledge
- Institutional-level services with regulatory compliance and proper documentation
- Fast execution speeds for active trading strategies
Use DeFi when you want:
- Full self-custody and security from company failures or mismanagement
- Composability, where protocols interact seamlessly for complex strategies
- Permissionless innovation and access without identity verification
- Complete financial privacy without KYC requirements
- Direct control over your assets without intermediary risk
Notable CeFi Platforms
Coinbase is a US-regulated exchange that has more than 100 million users around the world. The platform focuses on following the rules and has stock that can be bought and sold by anyone. It’s popular with people who are new to crypto markets because it has an easy-to-use interface and learning materials.
Binance has the most trading pairs and goods available around the world. Every day, the platform deals billions of dollars worth of spot trades, futures contracts, and loans. Even though there are problems with regulations in some places, Binance is still the biggest CeFi exchange by trade volume.
Kraken heavily focuses on security steps and being open about how it works. Since its establishment in 2011, the exchange has never had a big security breach. For both institutional and retail clients, Kraken offers proof-of-reserves and stresses strong custody practices.
Institutional custody providers now include big names in traditional banking. Clearstream is in charge of just under €19 trillion in assets and started crypto storage in April 2025. Crypto custody is also offered by BNY Mellon and Northern Trust. This means that digital assets can be kept safe in an institutional-grade way.
Future Outlook
The CeFi landscape is evolving quickly as institutions adopt crypto and regulatory frameworks mature. Banks that introduce direct trading services are now competing with crypto native exchanges for market share. Clear regulation through frameworks such as MiCA in Europe enables more financial institutions to offer compliant crypto services. Institutional participation adds credibility to CeFi and attracts conservative investors who had previously avoided the sector.
Competition between regulated banks and crypto exchanges is expected to intensify. Traditional institutions bring trust, insurance, and strong compliance, while crypto exchanges offer advanced technology, broader asset support, and deeper liquidity. Companies that combine regulatory compliance with innovation and competitive pricing are likely to lead.
The future points towards a hybrid market where CeFi and DeFi operate alongside one another and address different use cases. CeFi will remain essential for fiat integration, institutional products, and regulated services. DeFi will continue to drive permissionless innovation, composability, and self-custody solutions. Users will move between both systems based on convenience and control, benefitting from the strengths of each model.
Conclusion
CeFi denotes centralised platforms that provide convenience, regulated services, and fiat integration, albeit at the expense of custody control. These platforms are suitable for beginners, active traders, and institutions that need to adhere to compliance standards. Nonetheless, they entail custody risk, counterparty risk, and security vulnerabilities. Grasping the nuances of both CeFi and DeFi enables you to make knowledgeable choices regarding the management of your crypto assets.
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Frequently Asked Questions
What is CeFi in Crypto?
CeFi (Centralised Finance) refers to crypto platforms, like centralised exchanges, custodians, and lending services that manage user funds on their behalf. Users must complete KYC and trust the platform to secure their assets and process transactions.
How Does CeFi Work?
CeFi platforms hold your crypto in custodial wallets, manage order books, execute trades, offer staking/lending, and provide customer support. Instead of interacting with smart contracts directly, users rely on the platform to handle deposits, withdrawals, and security.
What is the Difference Between CeFi and DeFi?
CeFi is centralised and relies on a company to manage funds, while DeFi is decentralised and uses smart contracts for transactions. CeFi is easier for beginners and allows fiat transactions, whereas DeFi offers self-custody and permissionless access.
Is CeFi Safe?
CeFi can be safe if you use regulated, compliant platforms with strong security practices. However, risks include exchange hacks, insolvency, mismanagement of custodial funds, and withdrawal restrictions. Always enable security features like 2FA and avoid storing long-term assets on exchanges.
What are Some Examples of CeFi Platforms?
Popular CeFi platforms include Coinbase, Binance, Kraken, and institutional custodians used by banks. They offer regulated trading, custody solutions, and fiat on-ramps.
Why Do People Still Use CeFi When DeFi Exists?
Users prefer CeFi for convenience, customer support, simple onboarding, and fiat integration. Institutional investors also rely on CeFi due to regulatory requirements and compliance. DeFi offers more freedom, but comes with complexity and smart contract risks.
What are the Risks of CeFi in Crypto?
Key risks include:
- Custodial risk (you don’t control private keys)
- Exchange hacks
- Liquidity issues or insolvency
- Regulatory crackdowns or service disruptions
- Hidden fees on advanced services like lending
Can Beginners Start with CeFi?
Yes. CeFi platforms are beginner-friendly, offer easy KYC, provide support, and allow direct INR deposits/withdrawals. Many first-time investors start on CeFi before exploring DeFi.
Should I Store My Crypto On a CeFi Exchange?
You can keep short-term trading funds on CeFi, but for long-term security, self-custody (hardware wallet) is recommended. Follow a hybrid strategy—trade on CeFi, store long-term assets safely.
How Does CeFi Taxation Work in India?
Crypto transactions on CeFi are subject to a 30% tax on profits and 1% TDS under Indian law. Tracking transactions manually is difficult, so platforms like KoinX automate TDS+tax calculations across all CeFi exchanges.