The past few months have not been easy for the crypto ecosystem. Indeed, several billion dollars vanished following the collapse of Terra-Luna and the bankruptcy of FTX. Many investors and businesses were ruined overnight. Mistrust reigns over the solvency of several centralized exchanges (CEX). However, if there is a panointed positive thing to remember from this chaos is thee revival ofinterest in cryptocurrency self-custody.
The difference between centralized and decentralized exchange
As a reminder, centralized (CEX) and decentralized (DEX) exchanges are two very different concepts. A CEX is centrally controlled, usually a company, which takes care of the storage of its users’ funds. To operate on the platform, they must register and provide personal information. Accounts are protected by measures such as firewalls, PIN codes and passwords.
A DEX (or decentralized exchange) works in a totally different way. Exchanges take place between users without any third-party intervention. The user retains full control over his funds. No money deposit is required to trade, but also, the user does not share any personal information with the platform.
Because of this, DEXs have the advantage of being more transparent and secure than centralized exchanges, as they eliminate the risk of hacking, which is a common problem with centralized exchanges, and the transaction history is directly available on the blockchain.
CEX vs DEX: the exchange war has begun
After the bankruptcy of FTX and the inability of many CEX to provide credible proof of reserve, several crypto investors in search of confidence and security turned to decentralized platforms such as dYdX, Uniswap or even Aave.
The latter are deemed to be more transparent. Indeed, as has explain Tim Shan, COO of Dexalot, a blockchain subnet built on the Avalanche protocol, in an interview with Bitcoin.com, Decentralized Exchanges (DEXs) offer a better alternative to CEX like Binance, Coinbase, etc.
For him, it is certain that DEXs will capture more and more market places because “it is not necessary to trust a company and its employees to own the assets”.
In addition, Tim Shan recalled the obstacles that prevent the mass adoption of DEXs. He believes that there is still work to be done to improve the user experience.
“I think the ease of use of wallets is a barrier to the mass migration from CEX to DEX. Although I use Metamask myself today, it’s just not user-friendly enough,” he said.
Tim Shan discussed other limitations that prevent DEXs from appealing to users. These are in particular the “low trading volumes and very high transaction fees”. Moreover, despite the limits of DEXs, they remain the best way to protect your crypto investments from a script at the FTX.
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