Telling CeFi and DeFi apart
Not by the name, but by three checkable questions: who holds custody, who can freeze, who changes the rules?
This lesson has had no expert review. It was written for this platform and against the evidence it cites; nobody has gone through it independently.
Learning objectives
- You can classify an offering by three questions rather than following its self-description.
- You can explain why “decentralized” is a property with degrees.
Check your prior knowledge
Answer these for yourself before reading on. Wherever you hesitate is where this lesson pays off.
- Who holds the keys to your assets?
- What is a custodian?
- Who can freeze an account?
Core concept
The self-description is not a criterion
“DeFi” is not a protected term and describes no fixed construction. Offerings using the label range from protocols running entirely on-chain to companies with an app, a customer account and custody. Only what is checkable serves for classification.
Three questions that carry the classification
First: who holds the keys — the user or the provider? Second: can anyone freeze individual users or balances? Third: who can change the rules, and how? The answers often come out mixed, and that mixture is precisely the finding.
Decentralized is not a switch
A protocol can run on-chain and still be steered by a handful of addresses. A stablecoin can be freely transferable and still contain an issuer freeze function. The useful formulation is therefore not “is it decentralized” but “in which respect, and in which not”.
Definitions
- Non-custodial in the glossary
- The user holds the keys; no third party can dispose of the assets alone.
- CeFi
- Financial service with a company as counterparty and custodian.
- DeFi in the glossary
- Financial functions executed as openly accessible protocols on a blockchain.
Model
Who holds the keys?
Can anyone freeze individual balances?
Who changes the rules, with what notice?
Record the finding — including where the answer stays open
Worked example
Three offerings, three answer patterns
- Offering A
- keys with the user, no freeze function, governance with timelock
- Offering B
- keys with the user, issuer can freeze, parameters changeable by the team
- Offering C
- keys with the provider, customer account, terms changeable unilaterally
All three may call themselves “DeFi”. The three questions separate them regardless.
A: on-chain with distributed control. B: on-chain with a central power to intervene. C: custody by a provider.
Reading: B is the case that occurs most often in practice and is named as such least often.
Retrieval
Exercise on real data
Pick two protocols and answer the three questions from their own documentation. Record where you found no answer — that is a finding, not a failure.
Look at this platform's protocols →Application
Which document would you request from a provider to answer the three questions with evidence?
Related case studies
Institutional reading
- Bank
- Is there an identifiable counterparty — and if so, in which jurisdiction?
- Advisory
- Does the client know who can dispose of their balance if it comes to that?
Key takeaways
- An offering's self-description carries no classification — three checkable questions do.
- Mixed answers are the normal case and belong in the finding in full.
Evidence
- EVD-2026-0001
Electronic Markets (Springer) — A multivocal literature review of decentralized finance: Current knowledge and future research avenues