Decentralized exchanges are not yet ready for derivatives
There are no offices, no traders on the floor waving papers, and certainly no men in suits. DEX is managed automatically or semi-automatically, with the participants in the platform making important decisions. DEX is currently the foundation of the system, which opens up breakthrough opportunities for many people but cannot currently meet the derivatives trading environment.
The decentralized exchanges currently lacks the technological base for the options market with the complexity found in the traditional space. As a result, current services are inefficient in terms of capital, poor prices, and risk for traders. Also, people must come first and technology only when it is mature, which enables decentralization into advanced components. Decentralized Exchange dYdX has had great success with its approach of combining central order books with decentralized custody and shows that this is also a viable way of implementing tools.
The share of DEX spot trading volume on the Centralized Exchange (CEX) was 9% in June – the climax of the regulatory crackdown.
Price kCurrency exchange transactionsmiddle of the night DEX and CEX | Source: The Block
During that time, dYdX also saw a $ 11.6 million increase in sales in August – which resulted in a higher decentralized exchanges adoption rate, thanks in part to its hybrid approach.
dYdX Current data | Source: Tokeninsight
The more focused matching approach offers the opportunity to use complex financial instruments earlier and on a large scale. The prioritization of decentralization is to be welcomed, but too rigid an application will delay access to the opportunity for financial transformation.
Brings user experience occasion
Centralized exchanges are the go-to place for many users who are uncomfortable with a completely self-contained experience. Not everyone wants to manage their own money. In fact, if you lose your private key, you could lose all of your savings.
For example, looking at the graph below, a certain percentage of crypto newbies tend to switch to centralized exchanges.
Trading volume of Uniswap so with Coinbase and Binance | Source: The Block
Impact Theory Co-Founder and CEO Tom Bilyeau is a fan of CEX over DEX. Tom is a relatively new name in the crypto space and he knows that he should “keep himself safe”. However, in an honest confession in a recent interview with Robert Breedlove, he stated that he would rather keep crypto on the exchanges due to its security and lack of movement. Of course, Twitter ran the “Don’t be like Tom” banner, but if we want to grow as an industry, we can’t. Tom goes through the same crypto adoption cycle as many other people. There is a large segment of the population that doesn’t even want to think about safety, they just want the exchanges to take the counterparty risk so they can continue to enjoy their lives.
Of course, there are solutions to conflicts over wealth autonomy and many reasons why people would prefer ownership, but this reality is still not the ideal experience for everyone.
The future is accessible to everyone
Cryptocurrency is a major project to universalize the financial world. For example, during the subprime mortgage crisis of 2007, the problem wasn’t the complex derivatives that went wrong, but rather the lack of transparency or the inability to verify the products being sold. Invisible risks in the system that nobody recognizes are the cause of the breakdown. With cryptocurrency, everything in the entire financial system is completely transparent and verifiable in real time. If necessary, people can learn about margin systems, credit systems, and other complex, traditional concepts that are fascinating or unfamiliar to them.
Centralized exchanges are aware that anyone can query, review and transfer their assets to another platform if they are not satisfied, holding the exchanges accountable. But who will be responsible for DEX and solve all the post-crash chaos?
This is especially important given that DeFi logs have lost around $ 284.9 million to hacks and other mining attacks since 2019, according to a report from crypto research firm Messari. At this point in time, the decentralized insurance industry is only a fraction of the Total Value Locked (TVL) at DeFi. TVL represents the sum of all assets deposited into DeFi logs to earn rewards, interest, new coins and tokens, fixed income securities, etc.
Since DeFi hacks are common in the crypto space, centralized exchanges or custodians can get insurance to put everyone at ease, and counterparty risk is best for the industry.
Decentralized is the ultimate goal
Of course, decentralization is the top priority. Users who have control of their own assets are ideal. In terms of targeting, this is a target where the industry is growing but cannot require user adoption until there is enough technology to cover its costs. The responsibility lies with the technologists to procure the necessary decentralized technologies. Accordingly, DEXs can have a bright future for derivatives trading, but not at the expense of security, speed, and availability for all.
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