CEFI is a great place to start if you're new to crypto banking

· What is crypto banking and the difference between CEFI and DEFI.

· Traditional banking vs. the CEFI model

· CEFI suppliers that are well-known.

· Start using CEFI today. Investing in cryptocurrency or taking out a cryptocurrency loan

The cryptocurrency ecosystem is continuously expanding, with new services being developed that allow you to do more with it than merely retain it. Crypto banking services are one of the most rapidly growing fields.

Because the risks involved are different, crypto banking services are divided into two categories. These categories differ in terms of custody - who is ultimately in charge of your funds - and the potential returns you can expect.

CEFI (Centralised Finance) - A service provider keeps your cash in trust and provides traditional banking services like interest and loans. Rates that are lower are associated with a decreased risk.

DEFI (Decentralised Finance) - A type of hybrid banking where you keep your money but engage with Smart Contracts to get access to services like liquidity provision and yield farming. Because the danger is greater, the rates are higher.

This article focuses on getting started with CEFI, while the next page provides an overview of DEFI.

If you're not sure what custody is, read this essay on crypto storage and security first, then come back because it will help you understand the key difference between CEFI and DEFI.

The CEFI Model is unveiled.

CEFI essentially applies retail banking principles to cryptocurrencies. CEFI is ideal to crypto users who are risk apprehensive and prefer to generate passive income because of this element of familiarity. CEFI, on the other hand, isn't without risk, as we'll see.

CEFI shares the following characteristics with traditional banking:

• You can earn interest on your cryptocurrency if you keep it in a safe place.

• You can get crypto by borrowing it.

• To spend cryptocurrency, you can get a VISA card.

• On card purchases, you can obtain benefits such as crypto cashback.

• Fixed commitments might generate higher interest rates.

• An app is used to keep track of these services.

• Customer service is available.

• You have faith in the CEFI provider to protect your funds.

What sets CEFI apart from regular banking

• Your funds are not guaranteed in any manner, unlike a typical bank account.

• The good news is that interest rates are not tied to those set by a central bank; the bad news is that they are much more competitive, but they come with risk.

• You can earn interest by investing in a CEFI-issued token.

• You can only borrow crypto/fiat if you have cryptocurrency as collateral.

• The process of creating an account is much simpler, albeit you must still present proof of identity.

• Terminology differs greatly.

Before we go over the steps to get started, let's explore these differences because they're critical to understanding CEFI's potential appeal.

Funds' Security

Your savings are covered up to a certain amount when you open a typical bank account.

So, whether you've been the victim of fraud or a bank error, you should be able to get your money back. Credit cards and other associated services are subject to the same rules. All of this is made possible by government regulation as well as banks insuring funds and preserving reserves.

If you've read any of the other articles on Learn Crypto, you'll know that one of the most distinguishing features of cryptocurrencies - as a new form of internet money - is the lack of a trusted intermediary, such as a bank. Validating transactions, issuing new money, and updating balances are all handled without the need for a bank's headquarters, staff, or customer support.

So there is no safety net; even if a CEFI provider accepts responsibility (custody) if they are hacked or go bankrupt, their terms and conditions will state that there is no guarantee that they will make good, but respectable providers should have reserves. (As a cautionary tale, read the account of Cred's demise.)

There are services that offer fund insurance, although this is unlikely to be supplied by default. As you'll see below, you should take every step to evaluate a CEFI provider ahead of time, and you should employ all of the available security features when using the service.]

Platform Tokens & Interest Rates

We detailed how interest rates are decided in traditional banking in a separate essay regarding passive income.

Cryptocurrency rates are decided by demand rather than a central bank. CEFI providers charge interest when they loan out deposited funds; the greater the demand for borrowing, the higher the interest rate for savers.

Stablecoins have the greatest interest rates because of their low volatility, making them a favoured coin inside DEFI. If you take the interest in a platform token, you'll get even greater rates.

Staking rates may also reflect the arbitrage accessible to CEFI providers by offering rates to consumers that are lower than the rate they may earn by directly staking funds with Proof of Stake coins.

A platform token is a cryptocurrency produced particularly to operate within the CEFI provider's economy.

• It incentivizes users to keep the token by paying interest on it; higher rates are offered for token deposits.

• Staking the token for a set period of time earns you a higher interest rate on your deposit.

• Additional services, such as cash back on a Visa card or retail rewards, can be unlocked by staking the token.

• The token, like any other cryptocurrency, is exchanged on exchanges.

• The token can be used to pay trading commissions where the CEFI provider also provides exchange services.

• Although token economies are circular and encourage community participation, there is no certainty that the token's value will rise.

Crypto Loans with Collateral

It's not as difficult as it appears.

If you apply for a loan at a typical bank, they will look at your credit history, ask for a lot of information about your financial situation, and give you a lot of documents to fill out. Loans are either secured (like a house) or unsecured (like a credit card) and based on your ability to repay them.

Crypto loans require substantially less paperwork, but they can only be obtained if they are secured against current crypto assets. If you hold 1 bitcoin and it is worth €48,000, you could borrow around €28,000 in Stablecoin or conventional fiat money against it.

The link between your collateral (valued at €48k) and the loan (valued at $28k in this case) is known as the Loan to Value Ratio (LTV), which is around 58 percent (28/48).

You'll have a Margin Call in addition to the collateral. Because bitcoin's price fluctuates, the value of your collateral may decrease. The loan provider does not want your collateral's value to fall below the loan's value, so the Margin Call is a trigger that says, “If your collateral's value drops by 35%, you must provide more collateral, or we will begin selling it to adjust the LTV.”

You'll be notified, but once the Margin Call level is reached, you'll have to make a decision. Remember, once you take out a loan, the CEFI provider owns the funds, so they don't need your permission to sell.

The importance of liquidations is discussed in greater depth in Nexo's blog.

What are the benefits of taking out a cryptocurrency loan？

You might be wondering why someone would borrow against their cryptocurrency rather than simply selling it if they needed money or a stablecoin. Here are some of the reasons for this:

Efficient taxation:

In many jurisdictions, selling your cryptocurrency is a taxable event. You can realize value without paying capital gains by taking out a loan against it.

Yield Hunting: Some investors are content to pay 5% interest on a Stablecoin loan because they believe they can earn significantly better yields elsewhere, such as in DEFI. They are, however, at risk of liquidation if the value of their collateral falls dramatically.

Pay off a mortgage: If you have a fiat liability, like as a mortgage, you can pay it off by taking out a loan instead of selling your crypto, avoiding the tax.

Pay Interest With Appreciation: Many people want to get the most out of their cryptocurrency but are hesitant to sell it. A loan is a compromise since the interest can be paid from any increase in the value of your collateral, allowing you to spend the money you borrowed.

CEFI Providers in High Demand

These are some of the most well-known service providers. None of them are recommended by Learn Crypto. We recommend you to DYOR if you plan to use any of them because they all have active communities on Reddit, Twitter, and Medium.

Their interest rates are likely to be the most significant differential, but keep in mind that certain rates are set to attract clients rather than reflecting the amount of borrowing demand. There have been instances where tariffs have been dramatically decreased and with short notice across a number of providers.

Nexo.io - Provides crypto loans and interest on 18 cryptocurrencies as well as major fiat currencies. You can get a credit line in either money or stablecoin. Has a platform token (Nexo) that may be staked for preferential rates and is distributed as a dividend to Nexo holders and users. A Nexo card will be available soon, allowing you to use your credit line and receive rewards in Nexo tokens. A built-in exchange allows you to convert or acquire cryptocurrency.

Crypto.com - Pays interest on cryptocurrency deposits via soft staking (no fixed terms) or hard staking (terms are fixed) (180 day term). You can receive a Visa pre-paid card with cashback and advantages (Netflix, Spotify, Airport Lounge Access) based on how much of their Token Platform (CRO) you are willing to risk, and you can borrow against your crypto to get a credit line as a Stablecoin. Hard Staking offers you access to services like the Syndicate (where you can buy from a pool of cryptos at a discounted rate) and the Supercharger (where you can deposit CRO and earn more interest in a certain crypto). CEFI is controlled through an app, but it is also a component of Crypto.com's Exchange, NFT Platform, and DEFI Wallet.

Celsius - Provides cryptocurrency deposits and loans with preferred interest rates for interest generated and paid in CEL (their Platform Token). Currently does not provide an exchange service or a pre-paid card. CEFI services are controlled through an app.

BlockFi is a subsidiary of the Winklevoss twins' Gemini Group. Offers crypto loans with interest, but unlike the other suppliers, does not employ a token concept. Has a waiting list for a crypto rewards Visa card and provides a cryptocurrency exchange service.

Getting Started with CEFI: A Step-by-Step Guide

Now that you've learned enough about CEFI to understand how it works, follow these steps to get started. Make a list of what's important to you and DYOR (do you own research).

You may simply want to earn passive interest, obtain the finest cash back offers, obtain interest on a certain cryptocurrency, or obtain the best loan arrangement. Consider what is most important to you, and then look into the services. Coinmarketcap and Coingecko are two services that compare available rates, but there are others.

Check to see if your country is covered, as CEFI suppliers must adhere to local restrictions.

Soft Staking is a method of earning passive interest with no lock-up period.

Here's a basic guide if you're only looking for passive interest on your crypto:

· Once you've decided on a CEFI provider, look for promo codes, as most services provide a new client discount. Read the terms to see if a minimum deposit is required.

· Make sure to look for the official app in the Playstore or Appstore. Passive Interest can be controlled from your phone.

· Follow the on-screen instructions to complete the registration procedure, which will require identification such as a passport, driver's license, or national identity card.

· Use a secure email address and a strong password that is unique to the service.

· Configure as many security features as you can: Biometrics, two-factor authentication If you lose your phone, make a backup of your 2FA codes. For emails, Crypto.com employs an anti-phishing code.

· After you've set up your account, consider whether you want to earn interest on the platform token (if applicable), which will pay you a premium, but be aware of the hazards of it depreciating in value.

· Use the navigation to deposit the cryptocurrency for which you want to earn interest. To acquire the address to send your coins to, use the copy/paste feature. If a Memo is necessary, be sure to include it (XRP, XLM etc).

· Go to the wallet or exchange where your cryptocurrency is stored. Start by depositing a tiny amount using the CEFI deposit address simply to be sure. You'll be able to send higher sums once that arrives.

· If you don't already have crypto, most CEFI services will let you acquire it through the app, but be wary of the fees that come with using a credit card.

· Familiarize yourself with the App's features, particularly the Withdrawal options. The majority of CEFI providers will ask you to set a whitelist of Withdrawal addresses.

This is a security mechanism that means adding/changing a Withdrawal address can take up to 24 hours, but if you need immediate access, you're out of luck.

· Find your Referral code, which allows you to earn more bitcoin by referring others.

· Enable Email Communication or In App Messaging if you'd like weekly updates on the interest you've earned.

Hard Staking is a method of earning passive interest with a lock-up period.

Certain CEFI providers will give you the chance to earn a higher rate of interest if you agree to lock up your assets for a set amount of time and stake your funds on their Token Platform. The amount of interest you earn will be proportional to the amount you stake.

· To create an account, follow the procedures outlined above.

· Decide how much staking you're willing to do and buy platform tokens through the app. The platform token for Crypto.com, CRO, is shown in the sample image.

· The Hard Staking rules and lock-up time must then be properly studied and agreed upon. Read everything carefully since once you've agreed to something, you can't back out, even if the token's value drops.

· Keep an eye on the interest you've earned and wait until the staking time is over.

How to Get a Loan Backed by Cryptocurrency

• Examine the interest rates offered on loans using tools like Coingecko and Coinmarketcap.

• Decide what crypto collateral you'll use and how much fiat/Stablecoin you'll borrow.

• Calculate how much you may borrow against your bitcoin using an on-site calculator.

• Holding the Platform Token lowers the interest rate; the more you own, the lower the rate; however, this is dependent on your circumstances and risk appetite.

• To fully understand how the loan works, read the terms and conditions as well as the FAQs. Keep an eye on the LTV and how the Margin Call/Liquidation operates.

• You'll need to make an account if you're comfortable (as above).

• Deposit your cryptocurrency collateral to the given address to gain access to a Credit Line. You don't have to use the entire credit line, and interest is only levied after you withdraw.

• You can pay your interest in Fiat, Crypto, or a combination of both, and you can sell some of your collateral if its value has improved-to pay for the interest

• You'll be notified if the value of your collateral falls below a predetermined amount, and you'll be given instructions on how to proceed.

The Future Of Cryptocurrency Banking

CEFI is one of the most rapidly growing areas of cryptocurrency, as an increasing number of new crypto owners discover that there are familiar banking services available at very competitive rates when compared to their traditional savings accounts.

Despite this expansion, the market is still young, and because CEFI services are custodial (you don't have authority over your private keys), their acceptability will be determined by your risk appetite. If you're willing to take on some risk and want to learn more about the prospects for even greater profits, the following post on how to get started with DEFI will show you how.

The concerns are underlined by regulators' belief that CEFI crypto providers are actually selling securities in the United States. Although the possible impact on customers is unknown, these concerns should be taken into account.