CeFi to DeFi: The Migration Wave and Its Hidden Risks

Diganta1 · 2025-10-04T15:52:37+00:00

The flight from CeFi to DeFi accelerated after FTX, but are users trading one set of risks for another? This analysis explores the hidden dangers of DeFi migration and whether hybrid solutions offer a middle ground.

Diganta1

2025-10-04 15:52:37

The migration from centralized exchanges (CeFi) to decentralized finance (DeFi) has accelerated dramatically since FTX’s collapse. Users burned by custodial failures are flocking to self-custody and permissionless protocols. On the surface, this seems like crypto finally fulfilling its original promise. But the reality is more complicated. While DeFi eliminates counterparty risk with exchanges, it introduces different risks most users aren’t prepared for. Smart contract vulnerabilities have drained billions from supposedly audited protocols. Rug pulls and exit scams are trivial to execute. Phishing attacks targeting seed phrases are rampant. The average user lacks the technical sophistication to verify contract security or identify malicious dApps. Furthermore, regulatory ambiguity means there’s little recourse when things go wrong. CeFi platforms, despite their flaws, offer insurance, customer support, and legal frameworks. DeFi offers freedom, but also complete responsibility. As we move into 2026, the industry will likely converge toward hybrid models: regulated DeFi with optional insurance, or CeFi with proof-of-reserves. Pure decentralization and mass adoption may be mutually exclusive.

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