CeFi (Centralized Finance) is financial services delivered by an identifiable company that holds customers' assets, makes operational decisions and answers to regulators. The term is used mostly in crypto, to contrast custodial exchanges, lenders, brokerage apps and OTC desks with DeFi, where smart contracts hold assets and execute transactions without an operator. A CeFi platform records each user's balance on its internal ledger while the assets usually sit in pooled wallets, so it can reverse transfers, freeze accounts and run KYC. The main risk is that assets are not where the ledger says, as the FTX case showed. In the EU these activities need CASP authorisation, and buyers reconcile on-chain balances against the internal ledger.
CeFi vs DeFi
The difference is custody and accountability. On a CeFi platform the user deposits crypto to an address the company controls; the company records the user's balance on its internal ledger, while on-chain the assets usually sit in pooled wallets. In DeFi the user keeps the private keys and interacts with contracts directly.
That shapes what can go wrong and what can be fixed. A CeFi firm can reverse an internal transfer, freeze an account on a sanctions match, reset a lost password and handle complaints, and it runs KYC on every customer. None of that exists in a non-custodial protocol. In exchange, the CeFi customer's claim is against the company, so the company's solvency and honesty become the customer's risk.
Examples of CeFi in crypto
Centralised exchanges, custodial wallets, crypto brokerage apps, crypto lending and yield desks, OTC desks and payment processors that settle in crypto are all CeFi. In the EU, each activity maps to a MiCA crypto-asset service, such as custody, exchange, operating a trading platform, order execution or transfer, and can only be provided by an authorised CASP since the transitional period ended on 1 July 2026.
What are the risks of CeFi
The main risk is that customer assets are not where the ledger says they are. In its December 2022 complaint, the US CFTC alleged that FTX customer assets were routinely held by its affiliate Alameda Research and commingled with Alameda's funds, and that the defendants' conduct caused the loss of over $8 billion in customer deposits.
Lending platforms add a liquidity mismatch. Illustrative example: a platform holds 10,000 BTC of customer deposits, lends 7,000 BTC to trading firms on 90-day terms and keeps 3,000 BTC liquid. If withdrawal requests reach 4,000 BTC in a week, it cannot pay without recalling loans, and halting withdrawals is often the first public sign of trouble.
MiCA answers the custody problem directly. Article 70 requires a CASP holding client crypto-assets to protect clients' ownership rights, especially on insolvency, and bars it from using those assets for its own account. Client fiat funds must be placed with a credit institution or central bank by the end of the next business day, in a separately identifiable account.
CeFi in licensed fintech M&A
CeFi is what makes a crypto business acquirable: there is a legal entity, a licence, contracts and a customer book with KYC files. Diligence therefore centres on reconciling on-chain wallet balances against the internal ledger on a chosen date, documenting how client assets are segregated, and confirming that no client assets are lent out or pledged without consent.