How to invest in centralized finance in the world of cryptocurrencies and earn a passive income?


The world of finance is vast and varied. We can find different types of products and services along with a huge amount of financial intermediaries ready to help us invest our savings. As you have surely noticed, it is no longer convenient to invest or leave your money to traditional banks … For this reason a change of pace is necessary. In my opinion, the future of finance will be in the context of crytpo currencies, useful for cutting down the costs related to inflation and the holding of traditional currencies which today are nothing more than junk paper.

Today’s topic is about intermediaries in the world of cryptocurrencies, which from the comfort of our house will allow us to invest and let our savings grow in different ways. We can identify these intermediaries in the system “centralized finance” aka CeFi. What does it mean? Investors entrust their investments to certain business, in this case operating in the crypto and blockchain world. Against a fee, the business deliver a service and guarantee customer service and security at a corporate level.

There are different types of CeFi platforms in the world of crypto currencies, each of them has a different business model and responds to different laws depending on the location in which they are. Some focus more on the aspect of customer safety, others instead offer high returns against a monthly or annual block of customers investments… and so on… but more or less they offer the same type of service in terms of deposit of crypto currencies that may be volatile or stable and offer an annualized return (variable depending on the market situation).

How is it possible that by depositing our savings we can receive from 2% to 12% annualized (or even more) on our crypto from those businesses?

The answer is very simple, these companies use our funds, sometimes binding them for a period of at least 15 days, and use them to make their investments or more simply by lending large sums to large corporations or retail clients against a collateral. The loans and investments made by these CeFi platforms are at very low risk because backed by assets (such as NFTs) or crypto collateral and often on the platforms it is possible to see with extreme ease and transparency how our money are used to generate profit and therefore income for our portfolio.

We small investors can use various financial diversification strategies for our portfolio. So we can reduce the risks both at the crypto asset level and at the platform level by analyzing the market offer of the various centralized finance operators in the world of crypto and find the best returns (also called as Yield or Yield Farming) while at the same time focusing on security of our investments. Unlike the DeFi (Decentralized finance or rather in simple words a community finance system not controlled by one or a few individuals) platforms, which we will discuss on another occasion, our final returns will be lower but more secure because most of the CeFi platforms being managed by large companies have insurance and cyber security systems in place to be able to protect themselves and our funds.

By investing in different platforms it is therefore possible to diversify risk, access new investement opportunities and earn a passive return (albeit modest compared to DeFI but higher than traditional finance or banking systems) investing in a simple and safe way.

As mentioned previously there are different types of platforms, each has its own economy and internal management that allows them to manage funds. Most of the time these platforms are supported by a native crypto token that allows them to offer on that an high returns to customers and at the same time access to financing capital from investors, as if it was a stock of traditional markets.