For cryptocurrency merchants, 2020 has been framed as a battle between centralized exchanges (CEX) and decentralized (DEX). This was, in spite of everything, the yr through which Uniswap’s DEX emerged from nowhere to turn into one of many largest crypto exchanges on this planet, processing $10 billion of trades a month – with out custodying person funds.
At its peak, in October, decentralized exchanges have been capturing over 15% of all the crypto market, having begun the yr on just 0.12%. That’s fairly a turnaround, and means that CEXs – in addition to crypto brokers corresponding to PayPal (NASDAQ:PYPL) and Sq. (NASDAQ:SQ) – at the moment are locked in a struggle for market share with their decentralized counterparts. Alexey Koloskov isn’t satisfied although. Because the CEO of alternate aggregator Orion Protocol, he is aware of greater than most concerning the interaction between CEX and DEX. In his view, the subsequent leap for crypto exchanges will come when the 2 techniques be taught to reside collectively and construct upon one another’s competencies.
Reframing the Crypto Trade Battle
In keeping with Koloskov, the true battle on the fingers 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 through which there can solely be one winner.
“Whereas CEXs and DEXs will proceed to serve totally different functions for various audiences, I see the centralized / decentralized dichotomy as one of many one of many largest obstacles to crypto’s growth,” begins Koloskov.
“As new customers enter the house, 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 corresponding to Uniswap and Mooniswap have hailed them as a monetary revolution that wrests management of crypto property away from centralized exchanges and again into the fingers of their rightful homeowners, simply as Bitcoin creator Satoshi Nakamoto all the time meant. As Koloskov is fast to level out, although, DEXs are usually not a panacea for the cryptosphere, and whereas they undoubtedly clear up key issues with custody and belief, additionally they introduce threat of their very own.
“Whereas we’ve seen vital quantity funnelling into DEXs and liquidity swimming pools, it’s nonetheless an immature house,” 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 imagine the query ought to not be centralized or decentralized, however somewhat who will likely be first to bridge the divide to create hybrid options that present entry to the advantages and alternatives of all the crypto panorama, however in a completely decentralized method.”
Naturally, Koloskov believes that Orion Protocol is the important thing to merging the CEX and DEX markets – and may cite compelling proof to bolster his assertion.
“CEXs provide an improved person expertise and better liquidity,” he acknowledges, “but it surely comes at the price of sacrificing possession for entry. We don’t suppose that accessing the crypto market must be so dangerous, troublesome, or costly.
“We’ve constructed a hybrid resolution that bridges the hole between each worlds … whereas pulling liquidity from the foremost gamers available in the market: centralized exchanges. We mixture the liquidity, order books, and buying and selling pairs of each CEX, DEX, and liquidity pool into one decentralized platform to offer entry to all the crypto market. The result’s one portal to entry all the crypto market, with out the necessity to surrender possession of your property.”
Why Liquidity Is Crypto King
Bitcoin would be the king of cryptocurrencies, however it’s liquidity that governs the markets. Merchants naturally flock to the exchanges that may provide the very 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 possibility 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 most important points within the house, and the most important obstacles to the widespread adoption of the trade. 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 all the crypto market in a completely decentralized method.”
The primary section 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 understand its potential, it should 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 struggle for liquidity,’ I do imagine the long run lies in aggregation of the trade in its entirety,” finishes Koloskov.
“By opening up entry to all the market in a single platform, we’ve developed a protocol for bridging collectively crypto, conventional finance, and real-world property. And solely via 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.