What is CeFi? Understanding Centralised Finance

Centralised Finance, or CeFi, is the bridge between the traditional world of fiat currency and the newer world of cryptocurrency like Bitcoin. It describes financial services that sit inside the crypto industry, but are run by companies, not by decentralised, automated protocols.

If you have ever bought Bitcoin on a major exchange, deposited funds into a crypto interest account, or used a crypto-linked debit card, you have probably used CeFi. These platforms combine blockchain-based assets with familiar features like customer support, account recovery and bank deposits.

How CeFi works

The key feature of CeFi is custody. In crypto, custody means who controls the private keys that move the funds.

In Decentralised Finance (DeFi), you hold your own keys and interact directly with smart contracts on the blockchain. In CeFi, the company holds the keys. When you deposit money or crypto into a CeFi exchange, you hand over control of your assets and rely on the company to honour your withdrawals.

This is very similar to how a traditional bank account works. You do not hold cash in a vault at home, the bank holds it on your behalf and updates your account balance.

Because a central company is in charge, they can offer services that are difficult for purely decentralised protocols. For example, they can reset a forgotten password, assist if you send funds to the wrong internal account, or cancel a pending transfer in some cases.

Key components of the CeFi ecosystem

CeFi platforms recreate many common banking and investment services, but apply them to digital assets like Bitcoin and stablecoins.

Order book exchanges

Most large cryptocurrency exchanges use a structure called a Central Limit Order Book. This is a digital marketplace where the platform matches buyers and sellers.

• Speed: Trades are matched on the company’s own servers, not directly on the blockchain. This makes trading fast and relatively cheap.
• Liquidity: These platforms usually have deep order books. That makes it easier to buy or sell larger amounts without moving the market too much.

Crypto lending and borrowing

Many CeFi lending platforms operate in a way that is similar to banks. They accept deposits from users who want to earn interest, then lend those funds to other users or institutions.

• Rates: In DeFi, interest rates are set automatically based on supply and demand. In CeFi, the company sets the rates. They use internal credit checks, institutional demand and their own profit targets to work out what to offer.
• Collateral: Borrowers normally provide crypto as collateral to secure a loan. If the value of that collateral falls too far, the platform may sell it to repay the loan. This is called liquidation.

Fiat on-ramps

One of the most important roles of CeFi is acting as a fiat on-ramp and off-ramp. These are the services that let you connect a bank account or card and convert government-issued currency (such as AUD, USD or EUR) into cryptocurrency, and back again.

For Australian users, this typically means linking an Australian bank account and buying or selling crypto in AUD.

CeFi vs DeFi: The core differences

CeFi and DeFi both aim to let people trade, lend, borrow and store value using digital assets. However, they follow very different approaches.

Trust

In CeFi, you trust people and companies. You trust the platform to manage your funds honestly, remain solvent and protect its systems.

In DeFi, you trust code. You rely on the smart contract to behave exactly as written, and on the transparency of the blockchain to verify what is happening.

Regulation and access

CeFi platforms usually follow local regulations. They carry out Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, which means you need to provide identification documents to use core services. This can help regulators monitor activity, but it limits access for people who cannot or do not wish to complete verification.

Most DeFi protocols are permissionless. Anyone with a compatible wallet and an internet connection can usually interact with them, regardless of where they live.

Censorship resistance

Because CeFi platforms are run by registered companies, they must comply with court orders and regulatory instructions. This means they can freeze accounts or block transfers if required by law or if their risk systems detect suspicious behaviour.

DeFi protocols are designed to be more resistant to censorship. In many cases, no single party can stop a valid transaction from being broadcast to the network, as long as the user controls their keys and pays the required network fees.

Real-life examples

CeFi covers a wide range of services in the crypto industry. Some of the most common include:

• Exchanges: CoinJar is a well-known example. In Australia, services like CoinJar provide a similar on-ramp to buy and sell crypto using an order book or instant buy/sell tools.
• Lenders: Some companies focus on lending and borrowing. Users can deposit assets like Bitcoin or USDC to earn interest, or borrow cash or stablecoins against their crypto.
• Brokerages and trading apps: Some traditional trading or sharemarket apps have added crypto features. They typically hold the crypto on your behalf and often do not allow withdrawals to a private wallet, which keeps them firmly in the CeFi category.

Risks and how to stay safe

CeFi can be convenient and familiar. It also introduces specific risks that you should understand before you use it.

Counterparty risk and insolvency

The biggest risk in CeFi is that the company holding your funds might fail. If a platform mismanages customer assets, suffers trading losses or takes on too much risk, it can become insolvent.

In traditional banking, government schemes sometimes provide deposit guarantees up to a set limit. In crypto, this type of protection is rare. If a CeFi platform goes bankrupt, users may have to join other creditors in a long legal process and may recover only part of their funds, or none at all.

Regulatory freezes

Because CeFi platforms act as central gatekeepers, they can freeze or restrict accounts. This might happen if they detect unusual activity, receive a law enforcement request or need additional verification paperwork from you.

You do not have full sovereignty over assets held on a CeFi platform. Access is always subject to the platform’s terms and local regulations.

Security breaches

CeFi platforms often hold very large pools of crypto in one place. This makes them attractive targets for hackers and scammers.

Leading platforms use strong security controls, such as cold storage, multi-signature approvals and insurance for certain types of loss. Even so, history has shown that breaches can still occur, especially when internal controls fail or staff are targeted.

How to stay safe

• Diversify: Avoid keeping all your assets in a single account. Spread holdings across different services or use a mix of CeFi and self-custody.
• Self-custody: For long-term holdings, consider using a hardware wallet or other self-custody option so that you control your own private keys.
• Research: Choose platforms with a strong security record, clear ownership, transparent communication and, where available, proof of reserves or independent audits. Check how they are regulated in your country and how they store customer funds.

Why CeFi matters

CeFi plays an important role in the broader cryptocurrency system. For most people, it is still the main entry point into digital assets.

By offering a familiar experience, including customer support, password recovery, mobile apps and direct links to bank accounts, CeFi makes crypto far easier to access. It reduces the need to understand seed phrases, gas fees or complex DeFi interfaces before you can buy your first asset.

DeFi continues to grow and innovate, especially for users who want more control and fewer intermediaries. Even so, CeFi remains essential infrastructure that connects the blockchain world to everyday money, payroll, bills and savings.