Text | Ratchet Ringer
In 2020, driven by the DeFi wave, decentralized exchanges will become popular.
Its market share has skyrocketed since April, and it continues to erode the market of centralized exchanges. For example, Uniswap, the leader in decentralized exchanges, beat Coinbase in terms of transaction volume. "The exchange market is about to change." Some players lamented.
In the face of this change, traditional exchanges will not sit still. They have launched their own decentralized exchange services. But it's not easy to kill yourself.
secondary title
threaten
Since the second half of this year, the decentralized exchange (DEX) in the DeFi ecosystem has been fierce.
Data from Dune Analytics, an Ethereum data analysis platform, shows that since June, the trading volume of decentralized exchanges has increased rapidly. As of early September, its total monthly transaction volume has risen from US$1.579 billion to US$13.135 billion, a surge of 731% in three months.
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DEX trading volume change chart Source: Dune Analytics
In the past year, the transaction volume of DEX on the Ethereum platform was only 2.4 billion US dollars. But in just one month of June this year, its transaction volume reached 4.3 billion US dollars. In July and August, the Ethereum platform DEX achieved a transaction volume of more than 10 billion U.S. dollars for two consecutive months.
"In the several groups I'm in, everyone is withdrawing coins from exchanges such as Binance, OK, etc., and switching to digging for sushi and pearls." Zhang Peng, a player in the currency circle, told Yiben Blockchain, "There even appeared In the army of withdrawals, someone withdrew 700,000 EOS from OK at one time.”
A large amount of traffic and assets are flowing from CEX to DEX, and the dominance of traditional centralized exchanges is being shaken.
The chart drawn by the overseas blockchain media The Block shows that from April to August, the ratio of DEX to CEX spot trading volume has increased for four consecutive months, reaching 6.06%. In other words, for every $100 of transaction volume generated by centralized exchanges, $6 of transaction volume will be generated by decentralized exchanges at the same time.
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DEX and CEX spot trading volume ratio Source: The Block
The speed at which DEX cannibalize the CEX market is getting faster and faster. "Will the trading volume of DEX surpass that of CEX?" With the growing momentum of decentralized exchanges, some people even raised such a question.
In fact, in the history of the currency circle, DEX has been tepid for a long time due to its low transaction efficiency and extremely unsmooth transaction experience.
It was not until the emergence of a new generation of DEXs such as Uniswap and Balancer, and the explosion of the DeFi ecosystem that DEXs emerged.
Compared with traditional DEX, exchanges such as Uniswap have adopted a new model of automated market maker (AMM), and the player's counterparty becomes the exchange's capital pool instead of other players. Therefore, the transaction efficiency and transaction experience of players have been greatly improved, and transaction fees have been reduced.
Since then, products such as Sushiswap have inherited Uniswap's AMM model and introduced a new mechanism for liquidity mining. All of a sudden, various swap exchanges emerged one after another.
According to data from CoinMarketCap, the 24-hour trading volume of the Uniswap exchange ranks 43rd. Considering that there is a common phenomenon of brushing volume in centralized exchanges, Uniswap's actual trading volume ranking has surpassed many traditional exchanges.
defense
defense
DEX is coming in menacingly, and traditional centralized exchanges have to face it head-on.
Their first move is to launch their own DEX products.
In early September this year, Binance launched Binance Liquid Swap, its first swap-like DEX platform. In 2019, Binance also launched Binance DEX, a traditional order-thin DEX platform.
In August, Xu Kun, chief strategy officer of OKEx, revealed that a small team had been set up within OKEx and was studying the AMM model. On September 13, OK renamed its public chain platform "OKChain" to "OKEx Trading Chain". This means that it will focus on trading scenarios. OKEx CEO Jay Hao also said that the technical advantage of this public chain is to "create the world's top full-service DEX."
The rise of decentralized exchanges is inseparable from the DeFi ecosystem. Therefore, the second strategy for centralized exchanges is to launch products such as DeFi mining and new coin mining to retain profit-seeking players.
Take Huobi as an example. Huobi launched the DeFi zone, which gathered a large number of popular DeFi projects such as YFI, YAM, SUSHI, etc. "The speed with which the three major exchanges have launched DeFi tokens recently is unique." A player in the currency circle said.
On September 7, Huobi launched the first phase of the "New Coin Mining" campaign. It is said that the first token ACH was sold out within 50.4 seconds of going online. Four days later, the tokens of the second event were sold out within 3.7 seconds.
However, most attempts at centralized exchanges have been unsuccessful.
SwapTuna on the Binance Smart Chain was smashed an hour after it was launched, and the price of the currency almost fell to zero. The Bakery recommended by Binance founder Zhao Changpeng also had a bad start. After the currency price plummeted, Zhao Changpeng deleted the Twitter that recommended the project in a low-key manner.
"CEX doing DEX is mostly a defensive strategy." Mao Pu, an exchange practitioner, told Yiben Blockchain, "It is unknown how much resources they will invest."
This is because traditional centralized exchanges will not revolutionize themselves. Facing the wave of DEX, their optimal strategy is to launch DEX and invest appropriate resources in promoting it. And CEX is still the basic disk of these exchanges.
"Currency players don't have much loyalty to the exchange. They will switch to whichever platform they can make money." Maopu said that once the DEX ebbs, players who switch to DEX will return to CEX in large numbers. Therefore, traditional centralized exchanges will not really invest in the DEX market.
future
future
What kind of pattern will be formed between DEX and CEX in the future?
Many players and practitioners told Yiben Blockchain that the market space of DEX will be further expanded, and the second and third tier CEX exchanges will be most directly impacted by DEX. But DEX is still difficult to replace CEX. In the future, the two will coexist for a long time.
In fact, DEX and CEX have their own advantages and disadvantages. Sometimes, advantages and disadvantages are relative.
For example, the threshold for listing on DEX is low, players can have more investment targets and face greater risks. DEX assets are controlled by the players themselves, and the platform cannot take them privately, but once the user loses the private key, the platform cannot retrieve the assets for the user. The product structure of DEX is simple, and the development cost is low, but the threshold for players to use is also higher.
"For many hoarders in the currency circle, decentralized exchanges are too troublesome to use, and it is difficult for these people to become users of decentralized exchanges." Zhang Peng said.
But at present, CEX still has many advantages, which are difficult for DEX to replace.
First of all, most CEXs operate in the form of companies, chasing profit, so there is an incentive to attract new players to enter. In terms of attracting newcomers, CEX undertakes an important task.
Secondly, CEX can directly face supervision and operate in compliance, and has more room for development.
Finally, the biggest advantage of CEX lies in its rich product functions, such as leverage, futures, options, stop-profit and stop-loss and other functional modules, as well as legal currency trading functions that cannot be replaced by DEX.
These differences make the driving modes of DEX and CEX completely different. "The core driving force of CEX is to serve customers, while the core driving force of DEX is technology and model." Mao Pu said.
"DEX attracts people who have the strongest ability to acquire information in the currency circle and are most willing to try new things. Ordinary players will still prefer CEX with better user experience and more convenient operation." He said.
In this regard, there are similarities between Uniswap and ICO proxy investment platforms such as Yunbi.com, which were popular in 2017. On Yunbi.com, players can directly participate in ICO; on Uniswap, players can quickly trade new online DeFi tokens.
But they also need to take higher risks. Some Yunbi.com players became rich overnight, while others lost everything.
The same is true for Uniswap. Someone who buys counterfeit money is immediately out of the game. (See"Currency circle is flooded with counterfeit money: counterfeiting gangs defraud hundreds of millions, buy villas and drive luxury cars"）
In the crazy land of the currency circle, behind the banner of freedom, there are many risks.
The fierce battle between DEX and CEX is continuing. At present, DEX is temporarily on the offensive.
But when the plunge comes and the leverage collapses, we don't know who will have the last laugh.
*The interviewees in this article are pseudonyms.
