Cryptoverse: Let’s talk about DEX, baby

Nov. 22 (Reuters) – As the crypto castle crumbles, some true believers say the answer is to double the DEX. A decentralized exchange, that is.

The spectacular collapse of Sam Bankman-Fried’s leading centralized cryptocurrency exchange, FTX, has prompted calls from mainstream bankers and investors for greater regulation.

In contrast, some cryptocurrency players are following Bitcoin creator Satoshi Nakamoto’s original vision of a cryptocurrency in decentralized trading, eliminating financial intermediaries and allowing investors to trade peer-to-peer on the blockchain. It is realized by moving to the place.

As FTX crashed on November 10, the overall daily trading volume of DEXs, including Uniswap and others, jumped to $12 billion, the highest level since May.

Four days later, according to CryptoCompare, November volume surpassed the previous month as a whole.

Meanwhile, weekly bitcoin flows from centralized exchanges (CEX) hit a record high in net outflows, with 97,805 coins moving out of the platform in the seven days ending November 13, according to data from CryptoCompare. did.

Varun Kumar, CEO of decentralized cryptocurrency exchange Hashflow, said, “It is clear that there can be risks associated with holding assets in a centralized entity.” The data shows that users are turning to decentralized trading solutions.”

That said, DEXs are not necessarily safer than their centralized rivals, and inexperienced investors can be exposed to significant risks.

Instead of passing funds through intermediaries or central institutions, users trade tokens directly with each other using blockchain-based smart contracts.

Therefore, like other platforms in the decentralized finance (DeFi) and Web3 worlds, there is no central oversight and investors are responsible for trading, settlement and safe storage of their coins and tokens, for better or worse. increase.

By comparison, CEX such as Coinbase (COIN.O)Binance, and FTX are similar to Wall Street’s traditional exchanges, acting as intermediaries for trading, making trading more user-friendly, especially for new investors, and offering coin custody services, as FTX has done. may also provide.

Many centralized players are also pushing to increase user confidence with measures to increase transparency, such as showing evidence of reserves.

Coinbase, Binance and FTX did not immediately respond to requests for comment.

FTX Shenanigans

That said, decentralization proponents warn that DEXs may protect investors from the kind of shenanigans seen on FTX, where as much as $1 billion in customer funds are reportedly missing. says that there is

DEXs cannot stop withdrawals, users must retain custody of their funds, and trading activity and reserves can be tracked directly on the blockchain.

David Wells, CEO of cryptocurrency exchange Enclave Markets, which offers elements of both centralized and decentralized services, said, “DEXs have the potential for malicious operators and single points of failure for systems. There is definitely an element of attraction to people in terms of reducing sexuality.” .

The FTX crash definitely boosted trading volume on decentralized exchanges at the time.

Volume on the largest DEX, Uniswap, surged to $17.2 billion in the week of November 6-13 from just over $6 billion the previous week.

GMX surpassed $6 billion in the week after November 6th when FTX’s troubles came to light, tripling its weekly average. On Nov. 9, when Binance dropped its plans to bail out FTX, Hashflow recorded him $110 million, while averaging $25 million per day.

Despite the recent surge, cryptocurrencies have not moved en masse to DeFi exchanges, with daily DEX volumes plummeting to near-October levels, below $3 billion.

Nevertheless, there has been a broader and more nuanced shift towards decentralized exchanges, with overall monthly trading volume for DEXs increasing from $181.5 billion to $240.3 billion from August to October, according to Chainalysis data. and ranged from CEX’s $173 billion to $203.5 billion. .

slow transaction speed

The renewed interest in DEXs has been linked to discussions at the heart of cryptocurrencies since Satoshi Nakamoto’s Bitcoin White Paper 14 years ago.

While some investors prefer the transparency of decentralized exchanges, the platform is not suitable for investors such as traditional financial institutions and specialty trading firms, Enclave Markets’ Wells said.

For example, DEXs typically have slower transaction speeds, but hedge funds may not want their trading strategies to be publicly traceable on the blockchain.

Many traditional financial institutions are legally required to hold external funds in external custodians and cannot “self-manage” investor assets to trade on decentralized exchanges.

So what is the future DEX or CEX?

Many market participants believe that centralized and decentralized exchanges coexist.

Chris Klein, co-founder of Bitcoin IRA, which provides cryptocurrency retirement accounts, noted that DEX and CEX are growing together as cryptocurrency trading expands. Very important.

“Both will exist in the future.”

Reporting by Lisa Pauline Matakkal and Meda Singh of Bengaluru. Edited by Vidya Ranganathan and Pravin Char

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