Should CEX Like Binance Start Building DEX and Defi Products?

The fallout of the crypto exchange FTX which filed for bankruptcy

 On November 11 raised serious concerns regarding the usage of Centralized products and services.

 As a result, the daily trading volume on centralized exchanges started dropping dramatically.

In contrast, decentralized exchanges saw enormous increases in trading volumes as well as product and service offerings. Does this indicate that large CEXs must begin developing DEX and DeFi products? 

To comprehend this, we must first understand how DEX is superior and how it will drive exchanges to start offering decentralized services. 

Over the last five years, decentralized exchanges have emerged to challenge incumbent CEXs. In brief, DEXs aims to offer lower transaction fees, allow users to directly own their own assets, and circumvent some regulatory restrictions.

However, centralized exchanges have an owner, and in order to protect the user funds, they must follow specific rules and regulations. As a result, they are similar to traditional banks in several aspects.

Another point to consider is the de-pegging of proof of reserve and proof of liabilities. In this regard, DEXs are more transparent to their customers in terms of disclosing their assets and providing frequent audits of their reserves. Although, CEXs also release their regular audit reports, but after the FTX fallout there are rumors surrounding that CEXs are faking their proof of reserve to gain users' trust.

These comparisons make decentralized exchanges more appealing to users, which is why numerous exchanges have already opted to introduce Defi products in order to gain user trust. 

CEXs already launched DEX & DeFi products

Last year, Binance CEO CZ announce that “the future of Binance is a decentralized open platform.” As a result, Binance launched a DeFi service called the “Binance Broker Program.” 

The program by which any other exchange, platform, or institution can deliver Binance's liquidity and market depth to their consumers via an API that provides order-matching services, account administration, settlement systems, and other services.

Later, Binance introduced Binance P2P which functions as an open marketplace, enabling direct trades between users and merchants.

Not only Binance, but cryptocurrency exchange Coinbase has also released a number of DEX products, including a decentralized app (DApp) and a decentralized finance (DeFi) wallet in May 2022.

So one thing is certain: exchanges have already shifted their attitude from centralization to decentralization. The current FTX debacle is just a catalyst to increase the adoption of DEX and DeFi products.

Conclusion

The popularity of decentralized exchanges has skyrocketed in the past few years. If the momentum continues, centralized exchanges will face increasing pressure to deliver more and more decentralized products and services. 

And this presents an excellent opportunity for CEXs to enter a futuristic market and become a market leader.

What do you think about the future of CEXs? Do you think DEXs will dominate the market in the times to come? Share your views in the comment section below.

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