CEX defense battle: DeFi is aggressive, is the centralized exchange "panicked"?

Text | Edited by Nancy | Produced by Tong | PANews

Text | Edited by Nancy | Produced by Tong | PANews

With the wave of farmers farming in full swing, the high-speed train of DeFi (decentralized finance) is approaching CeFi (centralized finance) at an alarming speed. Among them, the sudden emergence of DEX, which is a magic weapon of automatic market makers, has made the trading track of the encryption market full of variables. Perhaps, even the predator CEX (Centralized Exchange), which stands at the top of the food chain in the encryption circle, failed to anticipate this sudden competition.

When we meet on a narrow road, the brave wins. A battle on the trading track has quietly kicked off. Can the eagerly awaited DEX successfully break through? Can the powerful and mature CEX keep the "Iron Throne"?

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DEX is coming fiercely, and the C position of the centralized exchange is unstable?

After two years of tempering, DeFi has developed into a force that cannot be ignored in the encryption market in just over half a year. Although DeFi started relatively late, its development speed and scale should not be underestimated. According to DeBank data, since this year, the total lock-up volume of DeFi protocols has increased by nearly 13.2 times, and the total market value of projects has increased by nearly 8.2 times.

Although the DeFi market has not been spared after the general decline in the crypto market as a whole recently, and many tokens have almost been cut in half, the performance of some of its high-profile projects still eclipses all cryptocurrencies in front of it.

Not only the ultra-high rate of return brought by the DeFi sector has made many investors "bow down" for it, but also its explosive potential has attracted VCs' favor. For example, the 34 decentralized financial companies listed on the DeFi Pluse platform have raised more than US$500 million from more than 100 venture capital funds, including Polychain Capital, A16z, Paradigm Capital, 1Confirmation and other well-known venture capital funds. figure. These are only the DeFi projects listed on DeFi Pluse, and there are still many project financings that have not yet been counted. It can be seen that the long-term value of DeFi is well recognized by capital. Of course, the power from the community has become an important pole to promote the development of DeFi.

Statistics from ICO Analytics show that the average website traffic of crypto exchanges in August this year has increased significantly compared with the previous month, and the average website traffic has increased by about 26% month-on-month. Among them, exchanges such as Binance, Coinbase, Huobi, and Kraken all increased by more than 30%. It is worth mentioning that among the top 20 most popular crypto exchanges, the decentralized exchange Uniswap surged 165% month-on-month, ranking 12th. This is the first time DEX has entered the top 20.

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Source: ICO Analytics

At the same time, The Block also pointed out that the trading volume of DEX in August exceeded 11 billion US dollars. The ratio of DEX spot trading volume to CEX trading volume has risen for a month in a row, exceeding 6% in August, and the ratio was only 3.95% in July.

Although it is difficult for the fast-growing DEX to really shake the big tree of CEX for a while, the impact of DEX on its activity and transaction volume is obvious. In the early stage of the DeFi boom, from the ease of the encryption market to the overwhelm of the DeFi ecosystem, centralized exchanges fell into a situation where they were led by the nose. They could only follow the rhythm of DEX (decentralized exchanges) to open a DeFi zone. Review popular online projects, only to meet the trading needs of users. What’s more, some platforms “forced” some DeFi projects for traffic without the consent of the project parties. Such a passive scene has never been seen in these centralized exchanges.

It is an undeniable fact that DEX is winning more and more investors. For CEX, especially small centralized exchanges, it will become increasingly difficult to survive in the future.

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Flow Defense Battle: From Passive Listing to Actively Pushing "Mining"

When players are withdrawing a large number of coins from CEX and frantically "infusing blood" for DeFi, the encryption market has ushered in a sharp drop, followed by CEX delaying or restricting withdrawals. For a while, the speculation that "CEX counterattacks DeFi with data smashing" spread like wildfire. Although this is only speculation, and many centralized exchanges have denied it, the reality is that tokens such as ETH are indeed constantly flowing out. For example, ETH, CryptoQuant data shows that the ETH outflow of CEX has been rising recently, and the total number of exchange withdrawals and transfers on September 7 was as high as 72,642 ETH.

CryptoQuant: ETH inflow and outflow of centralized exchanges; ETH transfer out of centralized exchanges

Subsequently, a "coin withdrawal movement" began to spread on major social platforms. When it comes to the "coin withdrawal movement", it can be traced back to the "Key Proof Movement" triggered after the "Mentougou" incident in 2014. This movement has been widely supported, and its original intention is to ensure the security of funds and call on users to master their own private keys. Since then, there have been coin withdrawal movements almost every year, but they have not achieved much results.

Different from the past, although the current "coin withdrawal movement" triggered by DeFi seems to be more formal than content, DEX has already occupied a certain market share by virtue of its own wallet and private key, no need to do cumbersome KYC and other advantages, and a lot of investment Everyone admires it, which makes CEX a bit "restless". But for now, the high threshold of DeFi technology and capital, network congestion, high handling fees, security and other issues also make it difficult to quickly reach the public. At the same time, under the madness of DeFi, there are many chaos, such as project running away, founders cashing out and smashing the market, etc., which also makes the large-scale popularization of DEX a long way to go.

Instead of blindly catering, it is better to change yourself. Taking advantage of the slowdown in the momentum of DeFi, major centralized exchanges such as Binance, Huobi, and OKEx have launched liquidity mining of their own platform coins, and launched their own public chains to support the positioning of DeFi. However, this gameplay is essentially different from IE0. The gameplay of IE0 is to lock the platform currency, investors use the platform currency to participate in project investment, and the mining method of the exchange is also to lock the platform currency, and use the mining mode to distribute new tokens in proportion. After all, this is still a kind of Play new behaviors. For DEX, it only provides a low threshold, no gas fee, and low slippage participation method, so that more ordinary people can participate. In addition, as the frequency of liquidity mining on the exchange accelerates, it is still debatable whether it will open up and go down like previous IEOs, and the quality of the project will decline.

It is worth mentioning that the popular DeFi has also brought about a partial bull market. With the support of the DeFi halo, can CEX, a new way of playing for the public, inject a shot in the arm for the sluggish market like the IEO game in 2019? William, the chief researcher of OKEx Research, told PANews that the lock-up mining model launched by major exchanges may lead the next wave of market development. He explained that lock-up mining is actually the previous "lock-up" + "airdrop". Compared with DeFi's "liquidity mining" allowing secondary market users to take over, this approach is more conducive to the healthy development of the market, but how long it can last for DeFi's "liquidity mining" remains to be seen by the market, because DeFi's "liquidity mining" itself is not sustainable.

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Complementary rather than substitutable, user demands are the only way to compete

Although DEX and CEX are very happy, both of them have exposed many shortcomings and problems under the rapid development.

The rise of DEX is largely due to AMM (Automatic Market Maker). According to data from CoinGecko, among the nine DEXs that account for most of the daily trading volume, seven of them are AMM-based DEXs. The main reason is that the traditional order book model is prone to problems such as slow transaction speed, poor transaction depth, and large transaction slippage. However, AMM has fundamentally changed the way users trade cryptocurrencies, opening up the "everyone can The new era of "market making" is the secret weapon to save the depth of DEX. However, AMM still has a lot of problems in terms of transaction pricing power.

At the same time, as we all know, the infrastructure of DEX not only requires stable API at the technical level, but also has strong robustness, and more importantly, it must have sufficient liquidity. However, from the current stage, due to the constraints of the infrastructure, the overall maturity of some DEXs is still a bit "hot". CEX, which has been developed for many years, has strong advantages such as a large user base, sufficient transaction depth, and sufficient asset liquidity, which are incomparable to DEX.

For DEX, if it really wants to surpass CEX, it needs to continue to polish the technology. As for CEX, DeFi has done a lot of user education for DEX. If the previous coin withdrawal movement was just a slogan, this time many people may really migrate to DEX transactions after tasting the true fragrance of DeFi.

With the help of DeFi's east wind, DEX has made great strides all the way. According to DeBank data, compared with the beginning of the year, the number of DEX users has increased by nearly 10.7 times, and the transaction volume has increased by nearly 158 times. Although the current trading volume of DEX is not comparable to that of CEX, the operational risks and trading behaviors that CEX often face are forcing users to DEX. At the same time, the ultra-high rate of return brought by DeFi has made more and more DeFi players start to trade on DEX, setting records repeatedly and even becoming the norm. As DeFi further opens up the growth space of open finance, its prosperous ecology will become a booster for the development of DEX.

DeFi and CeFi are complementary to a certain extent. Perhaps as OKEx CEO Jay Hao said, DeFi currently has poor entry barriers, user traffic, and product experience, while CeFi is criticized by customers for its transparency. We can use DeFi to collaborate to complete asset custody and settlement, while CeFi can play a role in customer acquisition and compliance, thereby providing users with better services.