Introduction

With the continuous development of blockchain technology, asset staking mechanisms are also evolving: Traditional Centralized Finance (CeFi) relies on centralized institutions for custody and operations. At the same time, Decentralized Finance (DeFi) leverages blockchain-based smart contracts, eliminating the need for intermediaries and achieving truly decentralized staking. Against this backdrop, a new financial custody model known as CeDeFi, which combines the strengths of both CeFi and DeFi, has emerged.

As an emerging financial mechanism, CeDeFi integrates the advantages of centralized and decentralized finance, offering a more flexible and secure solution for crypto staking. This article reviews the evolution of the CeDeFi mechanism and compares it with various staking models, covering traditional centralized staking, represented by government bonds; decentralized staking, exemplified by Ether.fi; and innovative CeDeFi practices, with Manta Network as a case study. Through in-depth analysis of these mechanisms in terms of security, profitability, and flexibility, this paper reveals the potential advantages of the CeDeFi model over other financial systems.

Blockchain’s Impossible Triangle (Source: @deletedaccount____/blockchains-impossible-triangle-decentralisation-security-scalability-4571d9d30632">Medium)

Core Concepts

CeFi
Centralized Finance is a financial system managed and operated by centralized institutions, such as banks or brokerage firms, offering services like credit and investment.

DeFi
Decentralized Finance is a financial system that does not rely on centralized institutions; instead, it uses blockchain technology to enable trust through code and provide services similar to traditional finance.

CeDeFi
Centralized-Decentralized Finance is a hybrid financial model that combines elements of centralized and decentralized finance, maintaining the advantages of DeFi while incorporating regulatory oversight.

DeFi VS. CeFi (Source: kalkinemedia.com)

Evolution of Staking Mechanisms

Staking Mechanism in CeFi

Staking mechanisms have a long history in traditional finance, dating back to the U.S. government’s introduction of treasury bonds in 1929, primarily represented by Treasury Bills. Investors purchase these short-term bonds at a discount, lending funds to the government to support public expenditures and receiving the full return, including principal and interest, upon maturity. Traditional staking mechanisms typically depend on centralized financial institutions for custody, requiring investors to trust these institutions and pay related management fees.

Although the returns on such investments are relatively low, they carry minimal risk, making Treasury Bills one of the safest and most stable risk-free investments. Other CeFi products include medium-term bonds (Treasury Bonds) with 2–10 years maturities and long-term bonds (Treasury Notes) with maturities up to 30 years. These traditional staking instruments offer modest returns but attract conservative investors seeking stability and security.

CeFi Product Representatives.Types of Treasury Bills (Source: marketbusinessnews.com)

The DeFi Revolution: Rise of Decentralized Staking

With the rapid growth of blockchain technology, decentralized finance has emerged over the past decade, transforming traditional financial operations by achieving decentralized custody through machine trust.

Projects in the re-staking sector, such as Ether.Fi and Lido, use transparent, permanently traceable decentralized custody protocols. Users who stake ETH on these platforms receive liquid staking tokens (LSTs), which can be used for further staking. This DeFi mechanism offers a flexible investment strategy with potentially high rewards, albeit with increased risks. Overall, this second phase of staking mechanisms is trending towards greater transparency and autonomy, encompassing various subcategories.

LST Protocol Operation Diagram (Source: Chainlink)

Emergence of CeDeFi Custody

As CeFi and DeFi develop in parallel, each showcasing distinct advantages, hybrid CeDeFi projects are emerging as bridges between the two. These projects focus on improving the current staking mechanisms while addressing the lack of regulation in the crypto world.

By striking a hybrid balance between on-chain financial transparency and regulatory compliance, CeDeFi retains decentralization features while introducing centralized management to address DeFi’s regulatory shortcomings. This approach meets traditional financial investors’ safety and stability requirements while attracting other users seeking high returns and flexible investment methods. As a result, CeDeFi boosts user confidence and broad participation, addressing shortcomings found in most current re-staking products, and ensuring the model’s necessity and iterative development in the long term.

The CeDeFi model is positioned between decentralized and traditional financial models (Source: yanda.io)

Distinction Between LCT and LST Mechanisms

Comparison of LCT and LST Mechanisms (Source: Gate Learn)

The key difference between the two mechanisms is whether centralized custody is involved.

The LCT (Liquid Custody Token) mechanism leverages centralized custody to ensure the highest standards of asset management security. This approach meets global financial regulatory requirements and enhances user trust, making it more suitable for users who prioritize compliance.

The LST (Liquid Staking Tokens) mechanism is entirely managed through decentralized smart contracts, emphasizing decentralization. During the staking period, users can continue to use LST tokens as ‘proof,’ providing an option for those seeking decentralization and high liquidity.

Users can tailor their asset strategies according to their individual needs by utilizing these two token mechanisms.

Market Analysis – Manta as a Case Study

As the first platform to offer real-world asset yields, the Manta project redefines decentralized staking through its CeDeFi model and introduces a unique regulatory staking mechanism. Below, we explore this representative CeDeFi product in detail.

Project Overview

Manta’s CeDeFi product integrates zero-knowledge proof technology to balance the transparency and compliance of on-chain finance, aiming to provide users with enhanced privacy protection and efficient financial services. As a pioneer in the CeDeFi space, Manta Network allows users to engage in decentralized staking through its CeDeFi model while enjoying the benefits of yield-bearing tokens.

The project achieves this by introducing a regulatory-friendly staking mechanism. It collaborates proactively with global regulatory bodies to ensure compliance and conducts regular internal and external audits to maintain transparency and security. This innovative approach attracts users who value privacy, security, and returns, combining decentralized finance’s flexibility with centralized finance’s security. It also contributes to the development of the CeDeFi ecosystem.

Manta CeDeFi liquidity mining gateway (Source: @usisan12/manta-cedefi-airdrop-25b7d26a8cd5">Medium)

Custody Mechanism

Manta Network collaborates with Ceffu (formerly Binance Custody) to merge CeFi opportunities with on-chain DeFi activities, ensuring the highest security and compliance standards in asset management. Users must first stake their assets with Ceffu and exchange them on Manta Pacific for liquid custody tokens (LCT).

Unlike conventional liquid staking tokens (LST), LCT represents a distinct custody mechanism. As a derivative of the original asset, it can circulate freely on Manta Pacific and other compatible DeFi platforms.

On Manta Pacific, LCT is referred to as mTokens, including the following types:

Manta CeDeFi supports multi-asset cross-chain staking (Source: Gate Learn)

Technical Features

Zero-Knowledge Proofs
Manta Network uses zero-knowledge proofs based on zk-SNARKs protocols to batch-verify computations, allowing users to conduct decentralized, anonymous transactions without revealing transaction details. Through its Manta Pay privacy protocol, compliant asset management is achieved. This temporary centralized custody ensures cryptographic security while providing users with the potential for high returns by accumulating staking rewards while enjoying privacy and security.

Manta also introduces a zkAddress for transferring private assets, known as zkAssets. The ciphertext for zkAddress is randomly generated (e.g., using BIP39 mnemonic phrases) and derives two keys: the zkAddress and a read-only key. To transfer zkAssets, users must use a Spending Secret to generate a ZK proof.

These innovations balance privacy and compliance while offering a flexible, efficient staking mechanism that enhances the blockchain network’s scalability and adaptability.

Privacy asset transfer process in CeDeFi (Source: Foresight News)

Liquid Custody Tokens (LCT)
User-staked assets are managed by Ceffu and converted into mTokens on the Manta Pacific platform. These mTokens represent the implementation of LCT derivatives and can be used on compatible DeFi platforms. This mechanism ensures asset security, enhances user autonomy, and offers greater potential for returns. It enables users to leverage their staked assets within the DeFi ecosystem for diversified income streams.

Ceffu provides professional custody solutions for crypto assets (Source: Ceffu.com)

Modular Data
Through a partnership with Celestia, Manta Pacific utilizes modular data availability technology, significantly reducing transaction costs and providing efficient infrastructure support. This modular architecture independently stores and manages different data types, enhancing processing speed and reliability. Users can select the most suitable computational resources based on their needs, achieving an optimal balance between cost and performance. The modular design also alleviates network congestion, improving system responsiveness and offering a smoother user experience with cost-saving benefits.

Multi-module ecosystem within Manta Network (Source: new.qq.com)

Universal Circuit Technology
Universal circuits provide Manta Network with greater flexibility, adaptability, and scalability, enabling it to handle various transaction types efficiently—from payments to smart contract executions. This architecture allows the network to scale quickly while supporting new features and protocols without requiring significant infrastructure redesigns.

Manta’s universal circuit architecture (Source: Manta Network Technical Resources)

Revenue Models

Custody Rewards
Users stake their original assets on Manta Pacific to receive LCT tokens. The value of these tokens fluctuates with the total yield of the staking pool, allowing continuous rewards over the staking period.

Re-Staking
Users first exchange for LCT tokens and then re-stake them in Manta Pacific or other compatible DeFi protocols. They utilize the compound interest effect to increase overall returns, simultaneously earning original staking rewards and additional yields.

Market Trading
LCT tokens can be traded on decentralized exchanges (DEXs), enabling users to profit from market volatility.

Platform Profits
Manta implements advanced on-chain arbitrage strategies executed by asset management firms, allowing regular users to also benefit.

DeFi Rewards
Users can engage in liquidity mining and staking on Manta Pacific, earning incentives to enhance the platform’s liquidity.

Token Incentives
Early community members or high-contributing users may receive airdrops of Manta tokens as rewards.

Multiple profit strategies in CeDeFi (Source: Gate Learn)

CeDeFi represents an evolution of the DeFi yield-bearing token model, offering continuous income through multiple profit strategies. Users can re-stake LCT tokens or participate in liquidity mining on DeFi platforms to generate long-term returns. Additionally, they can profit from market fluctuations and platform revenue sharing, maximizing asset utilization and increasing overall returns.

Comparison of Staking Investment Products

Development path of different staking models (Source: Gate Learn)
(Image Translation)

1. Traditional Staking Mechanism

• Mature and stable: Traditional staking mechanisms, such as Treasury Bills, have been developed for nearly a hundred years.
• Widely used: Favored by conservative investors because of its safety, stability, and extremely low risk of default.
• Fixed mechanisms: Relatively little innovation, but still an important part of global financial markets.

1. (LST) Decentralized Staking Mechanism

• Rapid growth: It has grown rapidly in the past decade and has huge room for future innovation, attracting many risk-tolerant investors.
• Technological innovation: DeFi’s staking mechanism is still iterating rapidly. For example, Ether.fi is a typical representative that earns compound interest through Restaking.
• Challenges and opportunities coexist: The decentralized staking mechanism faces challenges from smart contract loopholes, market turbulence, and unstable regulation.

1. (LCT) Regulated Staking Mechanism

• Emerging and rapidly developing: Yield-Bearing Tokens (such as Manta CeDeFi) is a newer investment model that combines the advantages of CeFi and DeFi.
• Increasing recognition: Although in its early stages of development, its unique yield model and high security have led to a gradual increase in market recognition and huge expansion potential.

Future Directions of CeDeFi

As the CeDeFi sector continues to evolve, the LCT mechanism—an innovative financial tool that combines the strengths of centralization and decentralization—is expected to develop along the following lines:

Enhanced Compliance
With the improvement of regulatory policies worldwide, the LCT mechanism will focus more on compliance. It will need to meet stricter and more comprehensive regulatory frameworks in the future, enhancing transaction privacy and data security.

Cross-Chain Compatibility
CeDeFi mechanisms will develop stronger cross-chain compatibility, enabling users to transfer LCTs seamlessly between blockchains and apply them across a broader DeFi ecosystem. Additionally, advancements in cross-chain technologies may further simplify asset transfer and management processes, improving the user experience.

Diversified Revenue Models
Automated arbitrage strategies, intelligent liquidity mining, and other mechanisms will attract more investors. Platforms will also leverage algorithms and smart contracts to optimize yield distribution and adapt to various market conditions.

Based on these predicted trends, the following four recommendations are proposed to optimize CeDeFi’s future development:

a. Strengthen Compliance
Collaborate actively with regulatory bodies to ensure the platform stays aligned with the latest regulations. Conduct regular internal and external audits to maintain transparency and security and provide users with a trustworthy environment.

b. Enhance Cross-Chain Functionality
Invest in cross-chain technology or establish partnerships with other blockchain protocols to co-develop and promote cross-chain solutions, increasing the compatibility of LCT tokens across multiple blockchains.

c. Improve User Experience
To simplify operational processes and enhance the experience for both new and experienced users, educational initiatives should be implemented to raise awareness about the CeDeFi model. Additionally, efforts should be made to lift regional usage restrictions and meet the 24/7 needs of global users.

d. Strengthen Security
Focus on advancements in zero-knowledge proof technologies and conduct regular security audits and vulnerability testing.

Conclusion

With the rapid development of blockchain technology, asset staking mechanisms have evolved significantly. From traditional Centralized Finance (CeFi) to Decentralized Finance (DeFi) and the hybrid CeDeFi model that combines the advantages of both, this progression not only reflects innovation in the financial industry but also profoundly influences investor choices and strategies. By comparing the evolution of asset staking mechanisms, we can observe:

1. Stability and Security of CeFi: Traditional CeFi staking mechanisms, such as Treasury Bills, rely on the security provided by centralized institutions, ensuring very low risk and stable returns. However, the lack of flexibility and relatively low yields limit this model in today’s dynamic financial markets.
2. Transparency and Autonomy of DeFi: DeFi achieves true decentralization through smart contracts, giving users greater control and flexibility. While offering high returns, it also comes with increased risk. Platforms like Ether.fi exemplify the innovative opportunities for flexible investments that decentralized staking mechanisms provide.
3. Innovative Integration of CeDeFi: CeDeFi, as an emerging financial custody model, addresses the regulatory and security shortcomings of DeFi by introducing moderate centralized management. For example, Manta Network successfully combines privacy protection and compliance through zero-knowledge proof technology and regulatory-friendly staking mechanisms, providing users with safe and flexible investment solutions. The rise of CeDeFi not only boosts user confidence but also enhances market participation, pointing toward a more efficient and secure financial future.

In summary, CeDeFi, as a new financial mechanism that merges the strengths of CeFi and DeFi, demonstrates its potential in asset management, user trust, and market flexibility. It represents an essential direction for future financial innovation. For investors, understanding and seizing the opportunities in CeDeFi will be a crucial strategy for asset growth. In the future, CeDeFi will show strong market potential at the intersection of privacy protection and compliance. As users increasingly demand security, privacy, and high returns, CeDeFi will play an increasingly important role in the financial markets.