Why Decentralized Exchanges Could Rise Up From The Crypto Rubble

Why Decentralized Exchanges Could Rise Up From The Crypto Rubble
Jonathan Hobbs, CFA

over 1 year ago2 mins

This month’s FTX fallout wasn’t a good look for crypto, I’ll admit. Sam Bankman-Fried siphoned billions in customers’ deposits from the exchange and used the cash as trading collateral for his hedge fund Alameda, which then lost the money. And when the centralized exchange (CEX) filed for bankruptcy, the liquidator said this: “never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here." That’s a bold claim for someone who also liquidated the infamous Enron.

Now from where I’m standing, that all sounds like a pretty good advertisement for decentralized exchanges (DEXs) – and I’m not the only one thinking this. The chart above tracks the total trading volume of DEXs as a percentage of the total trading volume of CEXs. And while that number’s been trending upward since 2019, it’s seen a hefty jump over the last few months following the collapse of other centralized crypto platforms like Celsius and Voyager.

See, while CEXs have to be audited and regulated to keep their customers’ trust, DEXs run entirely on the blockchain. Their transactions are automatically executed through smart contracts, and they’re all publicly recorded. For savvy crypto users, that can bring a lot of comfort.

Of course, centralized exchanges aren’t all bad, and some could even end up stronger after all of this. And DEXs aren’t exactly risk-free either, as there could be unseen bugs in the smart contract code that’s used to run them. So if you’re going to dabble in DEX tokens as a long-term (and likely very volatile) investment, start by researching the tokens of the biggest DEXs, and then spread your risk among a few of them if you invest. According to DeFiLlama, Uniswap (UNI), PancakeSwap (CAKE), and Curve Finance (CRV) are currently the biggest DEXs by trading volume and total assets held.



All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG