The Slow Death of Centralized Exchanges – Can Decentralized Exchanges Replace Them?

Decentralized exchanges, popular as DEXes, are finally witnessing high volumes as users hastily move their assets from centralized exchanges and custodial wallets. While these centralized entities offer easy onramp facilities for new users to hop on the crypto train, the sudden exodus of funds from centralized exchanges comes with good reason.

With platforms such as Polkadex and Newscrypto developing convenient solutions, it’s only a matter of time before the masses flock on decentralized exchanges.

The slow death of centralized exchanges in crypto

Most of the current cryptocurrency investors started their trading of digital assets on centralized platforms such as BitMex, OKEx, Binance, Coinbase, etc. Recently, top digital finance applications including PayPal, Venmo, and CashApp are making it easier for users to invest in cryptocurrencies, with the option to buy and sell digital coins directly from their mobile apps.

The emergence of traditional finance companies offering crypto wallets has boosted the overall adoption rates in the field as they provide easier-than-before onramp channels for the most basic investor. However, the more experienced crypto investors and traders have little to no funds deposited on centralized exchanges given the distinctions on ways you can (or can’t) trade, and limitations on which assets to buy and how to store them.

First, centralized exchanges provide users with custodial wallets meaning they are in charge of your coins – you only trade them. The popular phrase “not your keys, not your coins” is violated by storing your assets on a centralized exchange.

Additionally, over the past decade, several exchanges have experienced hacks that led to users losing billions of dollars in their crypto investments. Centralized exchanges have become a target for hackers given the massive amounts of coins they hold for users. While traditional platforms such as PayPal have FDIC insurance for their users, most nascent cryptocurrency exchanges lack insurance policies and do not pay investors their lost funds.

Finally, PayPal and Venmo operate a bit differently from the nascent crypto exchanges. In the first few months, users were restricted from withdrawing their funds, meaning you could only buy and sell within the app after depositing coins.

Looking deeper into the centralized trading of crypto, Robinhood, the fast and fee-free gamified trading platform, has grown into one of the most troublesome platforms to buy, sell and trade crypto and digital assets since it launched crypto trading in 2018.

The Robinhood saga

Robinhood has made it big by persuading a new generation of investors to have a go at trading. Known for ‘gamfying investing’, Robinhood has witnessed massive adoption rates in the past two years growing exponentially in revenue, profits, and assets. According to its Q2 2021 report, total net revenues increased 131% to $565 million in the second quarter of 2021, compared with $244 million in the second quarter of 2020.

Nonetheless, frustrated Robinhood investors sued the company in January this year after getting locked out of trading in frenzied shares like GameStop Corp., BlackBerry Ltd., AMC Entertainment Holdings Inc., etc. Despite users claiming in court filings that they suffered losses from the restrictions, the court dismissed the case with legal experts arguing the brokerage firm has the power to block or restrict any transactions on its platform. All of this is set in black and white in its customer agreements which everyone signs to gain access to the services.

Additionally, Robinhood also experienced several unusual technological issues and failures in times of high volume trading. According to some unnamed employees, the company failed to provide adequate guardrails and technology to support its customers.

With the uncertainty and risks surrounding centralized exchanges, decentralized exchanges are gradually growing helping solve the issues traders and investors face while trading crypto on CEXs.

Solving the pertinent issues on CEXs

Decentralized exchanges came to the limelight in 2019 and have since blown out in daily volumes traded and the number of users albeit still lagging behind CEXs. The key solution by DEXs is giving users a true sense of ownership of their assets. Unlike CEXs, users on a decentralized exchange need not trust a centralized authority but an automated protocol to carry out their trades. These protocols offer users full control of their assets, unprecedented levels of security, and negate the need for KYC procedures.

Over the years, DEXs have struggled to reach the masses due to the complexity of using these platforms. Additionally, they do not support fiat onramps and transactions hence liquidity on these platforms poses a challenge. Simply put, to choose a DEX means you are forced to give up the convenience of CEXs to have full control of your assets – a bargain most traders are starting to accept.

Newscrypto, an all-in-one crypto suite allowing easy and direct trading of cryptocurrencies, offers a hybrid version of CEX and DEX ecosystems via its all-in-one crypto suite. Its goal is to reduce the complex structure of DEXs and give newer users a better understanding of the field. The blockchain-linked ecosystem provides a comprehensive set of tools for all users, regardless of their current level of knowledge. The platform offers everything from automatic charting tools that help beginners understand the basics of technical analysis to advanced proprietary indicators for expert traders.

It aims to offer the best virtual place to make money using crypto assets. It offers the bridge between traditional trading and crypto trading by introducing advanced market indicators that DEXs lack. It helps users chart, analyze, and make decisions in a similar way as traders on CEXs do.

Another example of upcoming solutions aiming to solve the convenience and liquidity issues on DEXs is Polkadex, a fully decentralized peer-to-peer order book-based cryptocurrency exchange.

Trading engine for Web3 and DeFi

The main idea behind Polkadex was to create a platform that would combine the benefits of centralized and decentralized exchanges into one cutting-edge technology. Polkadex caters to any crypto trader. With Polkadex, users won’t have to compromise on any part of the trading experience while dealing with Web3 and DeFi products.

Leveraging blockchain technology, Polkadex creates a fully decentralized platform for exchanging tokens in a peer-to-peer trustless environment. The platform enables high liquidity, lightning-fast transaction speeds, low fees, and trading features such as high-frequency trading and trading bots. It supports multiple chains including Ethereum and Polkadot in order to increase participation and liquidity on the platform.

As stated above, DEXes offer self custody of assets and unmatched security. Polkadex goes a mile further by allowing users to delegate their assets to third parties. This is especially useful for newbie users who might find the platform too complex for them. This allows them to make profits through algorithmic trading while still keeping control of your crypto assets.

However, it’s the availability of a fiat onramp that really makes Polkadex stand out from the crowd of DEXs available in crypto today.

What does the future hold?

The decentralized exchange market is relatively young and the masses are yet to fully adapt to the complex nature of using them. Despite this, the innovative features and security properties of DEXs are garnering attention from traders and it may be a matter of time before the “Great Exodus” from CEXs happens.

But for such a future to unfold, simpler and more efficient platforms to trade crypto need to be built – Polkadex and Newscrypto being the start. These platforms are necessary to solve the convenience and liquidity problems that DEXs face in order to push these technologies and cryptocurrencies to the masses across the globe.