What is Centralized Finance?

To better understand what decentralized finance is we need to start with the bank and centralized finance.

Traditional Banking

In a traditional system money is held by banks and third-party financial institutions. The central bank usually works directly with the government and sets the standards for all other banks. They set the interest rates and control the flow of money. When you make a transaction, the banks move the money between the requesting parties until the exchange is complete. These transactions are tracked by the bank, they know who had the money and who got the money, the amount of money transferred, and when it took place. 3 They are backed by governments and in many places the governments are able to get banks to freeze assets for any reason, perhaps denying you of your money. Traditional banks are a type of centralized finance.

What is centralized finance in crypto?

Centralized Finance or CeFi is a way to transfer money using blockchain and cryptocurrencies. It is cheaper, faster, and more secure than traditional banking systems. For crypto much of the transactions take place on centralized exchanges (CEX). Binance, Crypto.com, Coinbase, and Uphold are examples of centralized exchanges. For example, when you use Binance to trade a crypto, you are trusting that exchange with your money and to process your order correctly and quickly through all the steps required to complete the transaction.. They will then take a small fee as payment for their services. As with banking this involves a central point of control. Unlike banking, these services are available to anyone connected to the internet.4

While centralized finance systems offer ease of use, they are not entirely anonymous as they often require users to supply know-your-customer (KYC) information before opening an account. They usually also provide Anti-Money Laundering (AML) services. This is all part of the security CEX’s offer to help prevent fraudulent activities.5

If you do have a traditional bank account CEX’s offer some of the easiest avenues to get your fiat money from your bank into a crypto currency.1

Some of the ways CeFi is being put to use in real world applications are:

• BlockFi – a borrowing and financing network
• Fairlay – a crypto forecasting marketplace and exchange
• Libra – a global financial infrastructure platform

What is decentralized finance?

Decentralized Finance or DeFi are services that don’t have a central point of control and make use of the blockchain with smart contracts. There is no need for intermediaries to handle the transaction. The blockchain acts as the ledger for transactions. This makes DeFi transactions transparent as anyone can follow the transaction. However, because decentralized exchanges (DEX) do not require you to submit any personal information to use the exchanges, your transactions, though publicly visible, are anonymous. Examples of DEX’s are Uniswap, Aave, and PanckeSwap.

To use a DEX all that is required is connecting your private wallet to the exchange through decentralized Apps (DApps). There is no need for other types of personal information. As with CeFi, the different exchanges in DeFi run on different blockchains.

Decentralized money transfers are the next best thing to walking up to someone and handing them the money. This allows anyone to move money anonymously through the internet without having to first put it into a banking system or a regulated exchange.

The future of DeFi looks bright thanks to the move toward real-word assets (RWA). As of the time of this writing, stablecoins are the best example of RWA’s. The market cap of stablecoins has risen 3000% since 2020.6 Gold has also been tokenized for use as a RWA. But it doesn’t stop there. Expect things like real estate, government treasuries, and securities to be tokenized as well.

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The Shima Enaga Ecosystem

The Shima Enaga Ecosysyem consists of two main elements: The Shima Enaga Academy and the $SHIMA token. The $SHIMA token exists as the primary way to invest into the Ecosystem and also directly support the Shima Academy through a percentage of the buy/sell tax.