From trust-based to rule-based: The future of CeFi vs. DeFi in Web3
What is happening?
The recent events in the Web3 space have once again shown what can go wrong with centralized intermediaries that rely on opaque, error-prone, and at times arbitrary practices and processes. The main issue is that users cannot verify the credibility of a statement (say, of a company’s CEO) until it is too late.
Besides the numerous calls for more regulation, this has also started and amplified a trend of moving from centralized and trust-based operations to decentralized and rule-based ones.
CeFi as Gatekeepers
While less in the limelight in recent weeks, there is another issue that centralized entities have: They mostly limit the access to participation opportunities to their client base, which is usually further restricted to a specific target group and excludes particular participant categories and jurisdictions. This exclusivity prevents the optimal allocation of capital and leads to centralized providers not only having a lot of influence on the perception of the Web3 space (as evident from recent events) but also directly on the evolution of the Web3 space itself.
DeFi over CeFi
In the past weeks, many centralized providers have taken steps towards more transparency, such as making proof-of-reserves audits public and vowing to do so in regular intervals. However, decentralized finance (DeFi) already offers an alternative with favorable attributes, such as being entirely transparent and rule-based.
DeFi gives users greater control over their assets, and mitigates counterparty risk. There is no arguing with a piece of software — no uncollateralized loans, no hidden agreements. The importance of this became apparent when entities that faced liquidity crunches recently first paid back their DeFi loans before Chapter 11’ing on the CeFi ones. Having an immutable, open and verifiable record of transactions naturally provides a high level of accountability.
This accountability has led some centralized entities to already incorporate DeFi (or some aspects of it) into their service offerings. However, there is still a problem at the heart of DeFi: How can regulatory requirements be satisfied?
Polimec: Evolving Fundraising to the next Stage
Current solutions lack adequate frameworks to enable network participants to comply with regulatory requirements without renouncing data privacy in a permissionless protocol. Polimec, on the other hand, is built to do exactly this without any intermediaries or counterparty risk. Access to participation opportunities is opened globally through a credentialing system appropriate for each participant type (retail, professional, institutional). A specially designed, community-driven, incentivized due diligence process helps participants make more informed decisions.
Polimec is transparent throughout the fundraising process regarding entry prices, vesting periods, and token allocations. From the perspective of a team looking to raise funds and eventually launch its own token, Polimec accompanies and automates every step of the process — from fundraising to token distribution upon mainnet launch.
Conclusion
In the medium term, both centralized and decentralized variants will likely remain, possibly with different target groups and regular users. Decentralized solutions such as Polimec build the basis for a transparent and open Web3, combining the core concepts of Web3 with verifiable credentials on self-sovereign decentralized identifiers. This enables network participants to comply with regulatory requirements while keeping the significant benefits of DeFi, such as the trustless verifiability of transactions. In the end, this is another crucial step along the way towards large-scale, global adoption.
#Polimec #Web3
