Blockchain serves as a refuge for a centralized finance platform to safely run on smart contract protocols, thanks to decentralized smart contracts that legally bind agreements between two parties without ever needing to have physical contact, its codes are designed to perform all lending to borrowing-related activities this reduces the workload for centralized firms to undergo paperwork scrutiny from regulatory firms, halting withdrawal makes these platforms even more centralized it is argued that the current cryptocurrency centralized platform is no different from traditional banks with their overruled authority over investors asset they can impose, transfer and make large business deal with customers deposited assets without their sole consent, Zipmex a Singapore based exchange recently announced halting withdrawal due huge amount of its company funding exposed to Celsius and Babel finance which are all handling liquidity problem from the bear market slump, customers have to be on losing end as their money are stuck in these platform till further information is generally passed the public.
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Here I will explore three different lessons learned from the recent CeFi lending financial firms.
Transparency problem
Numbers can't lie, except if one chooses to be manipulative and alter them, users barely have an idea of what goes on underground in large exchange lending companies we are quite aware of most big inter transactions displayed on news about certain deals and agreements reached by these big companies little do we know about how this money is put into use by such lending platforms. I guess with the recent market volatility most companies have begun to explain how they lent out a large part of customers' money to other institutions.
Lending and borrowing platforms offer minimal information as to where the funds that they’re borrowing go.
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Without a proper account of how customers' money is used, it will be difficult for an investor to trust any lending company in the future.
Lack of Off-chain storage
It's a known fact in the crypto-verse, not your keys, not your assets, lately campaign for users to remove their funds from centralized exchanges have been socialized, noting that users' funds can be restricted anytime due to security theft or liquidity problems as seen with the aforementioned centralized platforms.
A lot of people have seen this coming and have warned the public, the question keeps ringing where possible would investors exchange their digital assets to local fiat if they all take their assets off centralized exchange? this makes centralized exchange indispensable to some extent.
suggest solution
With off-chain storage, users will limit/minimize the risk of funds restrictions there will be a lasting solution against users' asset halting.
Can we have a centralized based platform run on decentralized wallets it's more complicated than it sounds I guess far from being a reahigh-yields
High yield return
Nothing attracts a customer/investor to a platform like a good yield return, I would eventually invest on a platform that makes a good promise return over the long run.
Those with high payout returns are exposed to more investors, what we don't put into consideration is will such a platform be able to sustain and manage users' fund's long term
Before exposing our funds to such a high-yield platform we need to understand how such funds will be put into use this will give investors a clue if their assets will be well managed or not.
final thought
If more lending platforms continue ending up with liquidity problems more strict regulations will be forced on crypto-based platforms which could make the crypto-space unfriendly for businesses and upcoming institutions willing to explore the new technology.
We are still experimenting with the space by learning from previous flaws there is a high chance of making good adjustments in the future.