From banks to blockchain: decoding TradFi, CeFi, CeDeFi, and DeFi

As finance evolves, Neira Jones clarifies TradFi, CeFi, CeDeFi, and DeFi, helping users understand new ways to engage with digital economies.

 

Let’s dive into the wild world of financial models, starting with the good old TradFi and working our way to what would some term as cutting edge!

TradFi: the Grandfather of finance

TradFi, or Traditional Finance, is like that reliable old car in your garage. It’s been around forever, and you know exactly what you’re getting:

• Centralised control (because someone has to be the boss);
• Regulated up to its eyeballs;
• Familiar services like loans, savings accounts, and investments;
• Slow to change (why fix what ain’t broke, right?).

I won’t elaborate on the characteristics of TradFi as you use it every day, and this is also covered extensively in my first book Understanding Payments. But just like that old car, TradFi can be a bit... well, traditional. It may not always be the most efficient or innovative, but just like a nice cuppa – comforting, familiar, and a bit old-fashioned – it still gets the job done.

As blockchain technology became more interesting for specific use cases, the traditional financial services industry saw new ways of using blockchain characteristics and properties. This is how the term ‘CeFi’ was coined.

CeFi: blockchain’s first date with finance

CeFi (Centralised Finance) is like TradFi’s cooler cousin who discovered blockchain and decided to give it a whirl.

CeFi is enabled by financial services applications where participants are financial services institutions who want to leverage the potential of blockchain technology to offer familiar financial services within a centralised framework.

It’s got some new characteristics:

• Centralised control (old habits die hard);
• Beefed-up security thanks to tamper-proof records (immutability);
• Improved transparency via shared ledgers;
• Streamlined processes through automation;
• Still plays nice with regulators (as exemplified by centralised crypto exchanges).

But here’s the catch: CeFi’s transaction speed can be a bit sluggish, which can hinder its ability to match the speed required for applications requiring high transaction volumes and fast transaction speeds such as consumer payments. It’s like trying to teach your grandpa to use a smartphone – there’s potential, but it takes time.

DeFi: finance goes rogue

DeFi is the rebellious teenager of the financial world, building an alternative ecosystem on blockchain. It’s all about peer-to-peer transactions without those meddling intermediaries.

DeFi is a generic term for decentralised financial services with an open infrastructure operating on a permissionless basis using a blockchain settlement layer where users control their assets. Services may include investments, insurance, asset management, payments, lending, and trading.

Key features include:

• Decentralised control (power to the people!);
• Cryptography-powered security;
• Transparency through public ledgers;
• Smart contracts doing the heavy lifting;
• Limited compliance (regulators, eat your heart out).

But beware, this wild west of finance comes with its own set of challenges, like smart contract vulnerabilities and a lack of regulatory oversight.

Spotting DeFi in the wild

To identify a true DeFi service, ask yourself these questions:

1. Does it involve asset transfers?
2. Is it trustless?
3. Do users control their assets?
4. Does it operate on an open infrastructure?

If you’re nodding yes to all of these, congratulations! You’ve got yourself some bona fide DeFi.

DeFi: not just another pretty face

DeFi isn’t just about looking cool; it offers some interesting opportunities:

• Yield farming: imagine your crypto working overtime to earn you more crypto. That’s yield farming in a nutshell. Users stake their assets in DeFi protocols to generate returns, often in the form of native tokens. It’s like planting crypto seeds and watching them grow into a bountiful harvest of digital coins. But remember, high rewards come with high risks. Impermanent loss and smart contract vulnerabilities are lurking in the shadows, ready to rain on your yield farming parade.
• Flash loans: picture borrowing a massive amount of crypto without collateral, executing a complex financial manoeuvre, and returning it all in a single transaction. That’s the magic of flash loans. They’re powerful tools for arbitrage but can be as volatile as a cat in a room full of rocking chairs if not handled properly.

GameFi: when gaming meets DeFi

GameFi is where the worlds of gaming and DeFi collide, creating a new universe where players can earn crypto while having fun. It’s like turning your gaming addiction into a potential side hustle!

• Play-to-Earn (P2E): P2E games are the bread and butter of GameFi. Players earn coins or tokens for their in-game efforts, which can be used within the game or traded for real-world value. It’s like getting paid to slay dragons or build virtual empires!
• Beyond P2E: GameFi isn’t just about earning while playing. It often incorporates other DeFi elements:
  • NFT-based in-game assets (because who doesn’t want to own a one-of-a-kind digital sword?);
  • Decentralised marketplaces for trading these assets;
  • Yield farming opportunities within games (your virtual farm can now grow real profits).

CeDeFi: the best of both worlds?

CeDeFi is the lovechild of CeFi and DeFi, offering DeFi functionalities within a centralised framework. It’s like having your cake and eating it too, but maybe with a slightly smaller fork.

CeDeFi bridges the gap between CeFi and DeFi. Built by financial institutions, CeDeFi applications may leverage a blend of blockchain applications and centralised systems. They offer functionalities typically associated with DeFi within a centralised framework, allowing for a familiar and more accessible user experience by combining DeFi functionalities with a familiar CeFi user experience.

Key characteristics include:

• Centralised control: institutions manage core functions, enhancing trust and efficiency.
• Enhanced security: blockchain immutability and institutional oversight improve security.
• Transparency: shared ledgers increase transparency, though limited by centralisation.
• Streamlined processes: blockchain automation speeds up tasks and transactions.
• Regulatory compliance: operates within regulations, ensuring user protection.

CeDeFi applications leverage the security and transparency benefits of blockchain technology, but their performance is often limited by the blockchain’s integration with traditional centralised infrastructure. Whilst CeDeFi offers a blend of benefits from both CeFi and DeFi, it’s important to note that it may not offer the same level of decentralisation, transparency, or user control over assets as pure DeFi platforms.

What next?

This is a very high-level introduction to these models, but the following table gives you some examples in real life:

Source: Neira Jones

 

A complete version of this comparative table can be found in my book Beyond Payments.

As these financial models continue to evolve, we can expect even more innovative ways for users to interact with digital economies. Whether you’re a TradFi traditionalist, a CeFi explorer, a DeFi rebel, or a GameFi enthusiast, there’s something for everyone in this brave new world of finance.

 

This editorial piece was originally published in The Paypers’ Web 3 Payment Acceptance Report 2025. The report highlights the current landscape of Web 3 payments, including their rapid growth, high adoption rates, and underlying drivers. It also explores key players in the field, regulatory advancements, the role of AI in crypto and blockchain, and more.

 

About the author

 

With 25+ years in financial services and tech, Neira Jones is a renowned expert in payments, fintech, and cybersecurity. A board advisor and speaker, she guides firms on innovation and compliance. An Amazon best-selling author, she’s recognised in top influencer rankings and serves on the UK Payment Systems Regulator panel. Fellow of the British Computer Society.