Building CeDeFi: Developing Technology For Implementing the Best of CeFi and DeFi

Historically, computing technology typically hits significant milestones that influence the course of history in 10 – 15 year cycles. The mid-80s was the era of PCs, the Internet reshaped the 90s, smartphones upended the 2000s, and since the introduction of the Bitcoin whitepaper in 2008, blockchain technology has been reshaping the course of history with…
Building CeDeFi: Developing Technology For Implementing the Best of CeFi and DeFi

Historically, computing technology typically hits significant milestones that influence the course of history in 10 – 15 year cycles. The mid-80s was the era of PCs, the Internet reshaped the 90s, smartphones upended the 2000s, and since the introduction of the Bitcoin whitepaper in 2008, blockchain technology has been reshaping the course of history with new classes of applications.

Above – Image source: DepositPhotos.

Blockchain has gone beyond a ledger for tracking ownership and transfer of value, to becoming a world computer; and now, it has become a new economics and finance model powered by smart contracts. At the heart of how blockchain is revolutionizing finance are the concepts of CeFi, DeFI, and CeDeF technology. This post explores the evolution of the application of blockchain in finance and economics and how the emerging CeDeFi technology expands its scope of influence.

A journey down memory lane – CeFi, DeFi, and CeDeFi

As soon as cryptocurrencies were proven to be a viable means of measuring, storing, and transferring value and the next milestone in the evolution of money; Centralized Finance (CeFi) became the default platform for the industry. CEXs are centralized, they require users to go through account creation, verification, and KYC process.

CeFi platforms are also custodial; users send their funds to an exchange, and all users’ funds, transactions, and transaction history are maintained by a central internal account. Depending on the CeFi, how active you intend to be, and how much funds you are bringing to the exchange, the process of creating an account and having access to the full suite of products and services will take up to an hour and sometimes days.

DeFi technology emerged as a true technological representation of the tenets of blockchain technology and cryptocurrencies. DeFi technology relies on smart contracts running on a blockchain to manage transactions on the blockchain without a third-party intermediary.

To use a DeFi platform, users connect their wallets to the dApp through a browser extension and they are automatically plugged into the economy of the DeFi platform. In contrast to the time it takes to be onboarded on a CeFi, DeFi users can be fully onboarded in a matter of minutes.

Spotlighting the key features of the emerging CeDeFi technology

The latest point of evolution in the world of decentralized digital currencies is the rise of the Centralized Decentralized Finance (CeDeFi) platforms. Unizen is a leading platform and it sets a standard for how CeDeFi’s technical architecture could combine the best of CeFi and DeFi to serve as a one-stop-shop offering centralized and decentralized financial products and services.

Martin Granstrom, CTO at Unizen notes that the team was strategic and intentional in its design and technical decisions early on “we have created a very strong and open architecture that into which we’ve invested a lot of time, effort, energy because building something that will scale with our requirements of becoming a one-stop shop for all trading personas and platforms requires laser focus on making the right decisions and architectural designs early on during the planning process.”

For instance, Unizen is connected to the liquidity pool of exchanges; hence its users can execute and finalize trades based on the best liquidity depth, transaction fees, network fees, and social sentiment across multiple exchanges instead of being forced to execute their trades based on the available demand and supply dynamics on a single exchange.

Martin further explains that “we have invested a lot of time to make sure that our foundation is built in a way to support all new crypto trading innovations without limiting ourselves to a single chain or exchange. This has been achieved in part by assembling a top-tier team with professional backgrounds at reputable companies like Google, PancakeSwap and Microsoft.”

Similarly, Unizen leverages game theory to get DeFi platforms to onboard their applications as part of a trade aggregation algorithm that only CeDeFi can offer. The DeFi applications go through an evaluation process that assesses their technical viability, security, and traction. Unizen then provides SDKs through approved projects that are onboarded into Unizen’s ecosystem. Once onboarded, the DeFi platforms engage in healthy competition to provide users with the most popular, competitive, and optimized trading pairs at the best prices. This competition, in turn, expands the trading volumes on Unizen.

Below are some of the superior technological features that give CeDeFi an edge over pure CeFi and DeFi platforms.

Custom and third-party modules

One of the key features emerging from the world of CeDeFi technology is custom and third-party modules for integrating the orderbook of centralized exchanges on CeDeFi platforms. CeDeFi platforms need to be integrated with both CEXs and DEXs in order to deliver shared liquidity for its users.

Similarly, CeDeFi platforms can enable third-party modules through APIs and webhooks so that they can onboard new modules to accommodate innovations without compromising on security. Interestingly, Unizen’s CeDeFi platform goes a step further by integrating a custom Logic that enables a frictionless customer experience when interacting with the CeDeFi CEX modules or other third-party modules.

Trade Aggregation Algorithm

Another technology being pioneered to deepen the versatility of CeDeFi platforms is a trade aggregation algorithm. Since CeDeFi platforms offer the best of CEXs and DeFi platforms, it is important to have Data Collector APIs that will consume and parse trade data from the custom and third-party modules of the native CEX and the onboarded CEXs and DeFi projects. The trade aggregation algorithm, in turn, enables CeDeFi platforms to offer traders the best execution and settlement offer for their trades.

Smart social sentiment

In developing technology for a CeDeFi platform, there’s a need to consider the role that sentiment and sentiment analysis plays in the crypto market. Hence, it is not surprising that the emerging CeDeFi tech has found a way to incorporate this social sentiment into their operation. To provide CeDeFi users with the maximum value that social sentiment can provide, Unizen aggregates Smart Social Sentiment indicators from several established and emerging social media platforms for each of the digital assets and asset pairs offered on the platform.

Still, on leveraging social sentiment, CeDeFi platforms are developing components that enable them to create custom indexes that track the state of the general crypto market, specific market segments, and correlations between different crypto assets.

Chain-agnostic node infrastructure

CeDeFi platforms also make massive investments in infrastructure for node operations. Running your own nodes enables local validation of blockchain transactions and reduces the time it takes for transactions to be broadcasted on-chain for faster confirmation. Running node infrastructure is also necessary to facilitate staking on the CeDeFi platform since most blockchains are now transitioning into Proof-of-Stake consensus models. By running node infrastructure and participating directly in the consensus process, the CeDeFi platform can realize and distribute competitive staking rewards to its users.

The bigger challenge, however, is that the CeDeFi platform may need to run nodes for all the multiple projects that are offered to the public. Hence, the CeDeFi will need Bitcoin nodes, Ethereum nodes for its ERC20 dApps, nodes for Binance Smart Chain, and ensure forward compatibility for the nodes of other projects that it may need to onboard in the future.

Interoperable platform utility tokens and tokenomics

CeDeFi projects are also creating platform tokens supported by sound tokenomics. Unizen’s ZCX token is one such token; it has a deflationary model and it will be deflated and burned with every paid listing on Unizen. ZCX is developed as an ERC-20 token because of the dominance of Ethereum’s blockchain in the dApps ecosystem, but it is also mirrored on Binance Smart Chain and it can be converted into a BEP-20 token using any of the ERC-20 to BEP-20 bridges available.

The platform’s native token will be used for paying transaction fees and it will also fuel other innovations within the CeDeFi ecosystem. The token will also be necessary to enable vested participation in the governance DAO, enable staking, and provide seed funding for early-stage projects within the ecosystem.

DAO governance

CeDeFi has a core decentralization component and thus, it is important to incorporate decentralized governance into the development of CeDeFi platforms. CeDeFi platforms are pioneering a new organization structure in which a known commercial entity and a quasi-anonymous DAO work together to determine, influence, and control the direction of a financial service institution.

The resultant effect is an organizational model in which the interests of seemingly disparate groups are aligned and the corporate goals are realized through decentralization and democratized access and input for all relevant stakeholders. Martin further observes that “Decentralization is a spectrum, which, in and of itself, allows for notions of more discrete parties participating in a greater fabric of network participants…The aggregation of inputs from heterogenous community participants, as opposed to relatively homogenous distribution, such as in a distributed system, may be argued to provide better selection for decision making, due to exposure to different thought processes”.

Final thoughts

CeDeFi’s technical architecture combines the best of CeFi and DeFi. Whereas CeFi is suited for institutional consumers and DeFi is geared towards retail consumers, CeDeFi meets the core needs of both classes of consumers across the need for deep liquidity, vetted products, reduced slippage, higher asset availability, and security guarantees. One of the ways CeDeFi is able to cater to both retail and institutional users is that its technical architecture enables it to provide cross-chain and chain agnostic products and services.

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