For cryptocurrency merchants, 2020 has been framed as a battle between centralized exchanges (CEX) and decentralized (DEX). This was, in any case, the yr during which Uniswap’s DEX emerged from nowhere to turn out to be one of many largest crypto exchanges on the planet, processing $10 billion of trades a month – with out custodying person funds.
At its peak, in October, decentralized exchanges had been capturing over 15% of your complete crypto market, having begun the yr on just 0.12%. That’s fairly a turnaround, and means that CEXs – in addition to crypto brokers resembling PayPal (NASDAQ:PYPL) and Sq. (NASDAQ:SQ) – are actually locked in a combat for market share with their decentralized counterparts. Alexey Koloskov isn’t satisfied although. Because the CEO of change aggregator Orion Protocol, he is aware of greater than most in regards to the interaction between CEX and DEX. In his view, the subsequent leap for crypto exchanges will come when the 2 methods study to stay collectively and construct upon one another’s competencies.
Reframing the Crypto Change Battle
In accordance with Koloskov, the actual battle on the arms of cryptocurrency exchanges is making a person expertise that matches something they’ve encountered in conventional finance. Furthermore, he’s fast to dismiss the framing of CEX and DEX in binary phrases as a contest during which there can solely be one winner.
“Whereas CEXs and DEXs will proceed to serve completely different functions for various audiences, I see the centralized / decentralized dichotomy as one of many one of many largest boundaries to crypto’s growth,” begins Koloskov.
“As new customers enter the area, there’s a transparent demand for centralized intermediaries who mirror the standard finance entities that buyers are used to, usually offering better liquidity, improved person experiences, and act as a stepping-stone in the direction of true decentralized finance.”
Combining the Better of Each Worlds
Advocates of DEXs resembling Uniswap and Mooniswap have hailed them as a monetary revolution that wrests management of crypto property away from centralized exchanges and again into the arms of their rightful house owners, simply as Bitcoin creator Satoshi Nakamoto all the time supposed. As Koloskov is fast to level out, although, DEXs will not be a panacea for the cryptosphere, and whereas they undoubtedly remedy key issues with custody and belief, in addition they introduce danger of their very own.
“Whereas we’ve seen important quantity funnelling into DEXs and liquidity swimming pools, it’s nonetheless an immature area,” notes the Orion Protocol CEO. “Many lack the liquidity, buying and selling pairs, person expertise, and options that merchants are used to with centralized exchanges. I consider the query ought to now not be centralized or decentralized, however reasonably who will probably be first to bridge the divide to create hybrid options that present entry to the advantages and alternatives of your complete crypto panorama, however in a very decentralized method.”
Naturally, Koloskov believes that Orion Protocol is the important thing to merging the CEX and DEX markets – and might cite compelling proof to bolster his assertion.
“CEXs provide an improved person expertise and better liquidity,” he acknowledges, “however it comes at the price of sacrificing possession for entry. We don’t suppose that accessing the crypto market must be so dangerous, tough, or costly.
“We have now constructed a hybrid resolution that bridges the hole between each worlds … whereas pulling liquidity from the key gamers available in the market: centralized exchanges. We combination the liquidity, order books, and buying and selling pairs of each CEX, DEX, and liquidity pool into one decentralized platform to offer entry to your complete crypto market. The result’s one portal to entry your complete crypto market, with out the necessity to surrender possession of your property.”
Why Liquidity Is Crypto King
Bitcoin will be the king of cryptocurrencies, however it’s liquidity that governs the markets. Merchants naturally flock to the exchanges that may provide one of the best value, tightest spreads, and deepest liquidity – whether or not that be CEX, DEX, or a mix of the 2. If Koloskov has his method, it is going to be this latter choice that turns into essentially the most worthwhile technique of buying and selling the markets in 2021. He explains:
“To us, fragmentation, centralization, and liquidity are the largest points within the area, and the biggest boundaries to the widespread adoption of the business. In 2018, we set about tackling these points by growing essentially the most superior liquidity aggregator ever conceived. This enabled the creation of our flagship product, Orion Terminal: connecting the top person to your complete crypto market in a very decentralized method.”
The primary part of Orion Terminal’s mainnet will launch on December 15, giving merchants the chance to see for themselves whether or not the long run is hybrid and aggregated. With the flexibility to commerce cryptocurrencies throughout CEXs, DEXs, and swap swimming pools, Orion Terminal guarantees to shake up the front-end of cryptocurrency buying and selling, even when, beneath the hood, customers are nonetheless connecting to the identical exchanges. If the buying and selling terminal can notice its potential, it would end in extra worthwhile order execution and spark the subsequent epoch within the evolution of cryptocurrency exchanges.
“With crypto having been described as ‘nothing greater than a combat for liquidity,’ I do consider the long run lies in aggregation of the business in its entirety,” finishes Koloskov.
“By opening up entry to your complete market in a single platform, we’ve developed a protocol for bridging collectively crypto, conventional finance, and real-world property. And solely by means of bridging the hole between these worlds will we obtain actual steps in the direction of change, constructing the foundations for a brand new monetary system: an accessible, safe, and decentralized way forward for finance.”
Disclosure: No positions.