The crypto market is often referred to as the financial world’s wild west. But the events that have recently unfolded in this space have put even the most stubborn cowboys of all time to shame.
FTX, the world’s second-largest cryptocurrency exchange until about a month ago, faced an unprecedented liquidity crisis on Nov. 8 after it was revealed to have facilitated questionable transactions with affiliate Alameda. faced with research.
In this regard, as 2022 continues to be a tough year for the global economy, the crypto sector in particular has been devastated by a series of meltdowns, significantly impacting the financial outlook and investor confidence associated with this mature industry. At this point, from May onwards, notable projects related to the field, such as Celsius, Three Arrows Capital, Voyager, Bold and Terra, collapsed within a matter of months.
The collapse of FTX has been extremely damaging to the industry in particular. This is evidenced by the fact that the prices of most major cryptoassets have fallen significantly after the company’s dissolution and so far show no signs of recovery. For example, within just 72 hours of development. , the value of Bitcoin plummeted from $20,000 to around $16,000. Many experts suggest that the flagship cryptocurrency may bottom in the $10,000-12,000 range. assets.
What awaits beyond the virtual currency exchange?
One of the key questions that the recent turmoil has brought to the forefront is what the future holds for digital asset exchanges, especially centralized exchanges (CEX). To get a better overview of the issue, Cointelegraph reached out to Bitcoin.com’s Dennis Jarvis, CEO of the Bitcoin exchange and developer of the cryptocurrency wallet.
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In his view, CEX is currently facing a very uphill battle, especially with lower revenues and tighter regulation on the horizon. In light of the current scenario, he noted that more and more people are and will continue to be drawn to using self-storage storage solutions, adding:
“It is clear that we cannot trust these centralized intermediaries. There will always be a place for CEX, but I believe they will play a minority role in the crypto ecosystem in the long run. There’s nothing quite like the oversized roles that have enjoyed so far.”
Alex Andryunin, CEO of exchange market maker Gotbit, told Cointelegraph that institutional interest in decentralized exchange (DEX) trading has already grown significantly. Up until this point, he had seen his DEX-centric profits for clients jump from his $8 million just a few months ago (i.e. September) to $11.8 million in the months that followed. , highlighted that it shows a 50% rise despite the overall carnage. crypto industry. he added:
“In my opinion, the business models of Binance, Coinbase, Kucoin and Kraken can survive the ongoing turmoil. The company has no significant competitors left.Even within the US market, as of Q3 2022, Binance US is growing, while Coinbase, Gemini and Crypto.com have declining DAUs. increase.”
Gracy Chen, managing director of cryptocurrency exchange Bitget, believes that the trading ecosystem will enter a consolidation phase that will bring more scrutiny to these platforms than ever before. In her view, this creates an opportunity for exchanges with strong balance sheets and prudent risk management practices to consolidate market share.
“Ultimately, I believe there will be no more than 10 centralized exchanges with strong competitiveness in the industry,” she told Cointelegraph.
Robert Quartly-Janeiro, Chief Strategy Officer of crypto exchange Bitrue, shares a similar outlook. He told Cointelegraph that the collapse of FTX can and should be considered a historic moment for the industry.
“It is the duty of exchanges to provide a better experience for crypto investors. They have to become a better and more trustworthy place to trade. It’s also important to remember that the role of an exchange is to protect investor funds and provide a market, not to be a market.FTX got it wrong.” he added.
Can DEX fill in the blanks?
Most experts believe that as long as centralized exchanges like Binance and Coinbase continue to maintain adequate balance sheets, there is no reason why their competition should not benefit from biting the dust. However, Jarvis believes that going forward, these major crypto entities will feel the heat of competition from DeFi protocols, especially as many people begin to realize the inherent problems associated with trusted intermediaries. He went on to add:
“I think more CEX will start investing in DeFi versions of their CeFi products.
Similarly, Chen believes that new opportunities will emerge in decentralized finance (DeFi) in the near future, adding that most of all centralized crypto services will cease to exist, especially lending/debt services, adding that CeFi lending It states that the model has been proven. Relatively unreliable at this point.
“DeFi presents huge development opportunities. Custody services, transparency and top-notch risk management policies will become the standard for centralized services,” she said.
However, Andryunin pointed out that most DeFi protocols are still not convenient for retail traders, adding that there are currently few high-quality DEXs with features like limit orders. If that’s not enough, in his view most platforms operating within this space today have a very poor user experience.
“Users need to understand concepts related to Metamask and other extensions, and many are experiencing issues related to fiat/cryptocurrency input. Even if they do, they will likely return to CEX, which has a higher reserve certification rating,” he added.
The future of cryptocurrencies lies in the fusion of CeFi and DeFi
According to Julian Hosp, founder of decentralized exchange DefiChain, transparency will be key to keep customers choosing the exchange going forward. He suggested that his pure DeFi continues to be too hard for most customers to use and that his pure CeFi is too hard to trust, adding:
“A solid exchange could increase their stranglehold. But it also gives us the transparency of DeFi, which is going to be the way forward for cryptocurrencies.”
Further explaining his views on this matter, and as evidenced throughout the last decade of history, over the coming months and years, DeFi liquidity will not be concentrated on one dominant blockchain. It will very likely go away and spread across multiple ecosystems and protocols, he added. market.
Finally, Chen believes that in an ideal scenario, CeFi could offer a better product with better margins and leverage, while DeFi could offer a trustless custody service. But things are within CeFi territory, so there are no on-chain custody services or mature regulations that exist in the traditional financial industry.
Moving forward, it will be imperative that new and old crypto-financial paradigms converge so that DeFi platforms can devise liquidity superhighways that can be exploited. This is especially important as this market is not capital concentrated. However, for this to happen, existing players from both centralized and decentralized industries will need to come together and work hand-in-hand with each other.
history should serve as a lesson
The recent FTX disaster is definitely a stark reminder that people should refrain from storing assets on non-transparent exchanges. In this regard, Nana Obudadzie Oduwa, creator of the digital currency Oduwacoin, told Cointelegraph that cryptocurrency enthusiasts must recognize the absolute importance of storing their assets in cold storage and hardware wallet solutions. He said no, adding:
“Cryptocurrencies are the future of money, and there is no question that blockchain-based technology is playing a role in redefining transactions in much the same way the internet has done to the telecommunications industry. , you cannot trust your money in other people’s hands like you can on an exchange, unless it is regulated with guaranteed proof of funds.”
Quartly-Janeiro believes it is important to have a level of institutional credibility and competence within the cryptocurrency landscape to move forward, following what happened at Lehman Brothers and Barclays in 2008. adds that liquidity can be an issue in any asset class. .
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“Coinbase and others will continue to attract customers, but the size of the entity itself is not immune to risk,” he noted.
Finally, Jarvis argues that over the past few years, money, market share and technological expediency have compromised the core tenets of cryptocurrencies. In his opinion, this latest wave of bankruptcies is an ongoing and heartbreaking episode in the evolution of cryptocurrencies, and perhaps the best, as it sets the industry down a better path, one rooted in the spirit of decentralization and transparency. This is the policy. It will therefore be interesting to see how the market evolves and continues to grow as we head towards a future driven by decentralized cryptography.