With SBF's exchange condemned to oblivion, crypto once again finds itself in turmoil. After the collapse of Celsius Network, 3AC, Terra LUNA, BlockFi and Voyager just this year, investors could be forgiven for thinking that lessons were learned. Apparently not.
As Centralized Exchanges combust, we must look to DEXs.
DEXs weather the storm
Decentralized Exchanges (DEXs) are simple, peer-to-peer platforms that facilitate trades between wallets. Their peer-to-peer nature means that they don’t have a central, all-powerful CEO (Samuel Bankman-Fried, for example, or Do Kwon). Decisions are made via DAOs and even they don’t carry huge influence over the simple act of wallet to wallet transactions. These decentralized platforms can’t borrow excessively, can’t over-leverage themselves and can’t squander customer funds on risky investments. They are also vastly more transparent and have no central point of failure.
Even if a DEX does close, users aren’t affected because crypto isn't stored on the exchange. There’s no option to stake funds for unrealistic returns. All of the big DEXs could shut down tomorrow and nobody would lose any money. Bankman-Fried’s Twitter apology is telling. He accepts full responsibility for FTX and uses the words “I/me/my” 43 times. It should set alarm bells ringing that one individual can hold such sway in the supposedly decentralized world of Web3.
The rise of the DEX?
DEXs tend to offer a wider selection of coins than CEXs, the risk of losing money to an exchange hack is all but zero and they are more anonymous. They’re also useful for countries in the developing world where web infrastructure might be lacking: anyone with a smartphone can trade. DEXs have thrived through 2022 despite the market downturn and collapses elsewhere.
On the other hand, DEXs can be more difficult to use—it’s easier to send coins to the wrong wallet, or purchase unvetted, rug tokens; but these risks are eliminated when users do some basic research. Thus, many consider these risks a worthwhile price to pay. After all, crypto stays in your own wallet when using a DEX. Just ask an FTX user if they wish their crypto was swapped on a DEX versus frozen in their now defunct account.
When it comes to DEXs, Uniswap currently leads the way with just over 50% of the market share and $3,492,422,291 24hr trading volume. Although that’s small in comparison to Binance’s $28,881,795,518, it’s roughly equal to Coinbase (the second biggest CEX) and ahead of other big players like Kraken and KuCoin. Don't be surprised to see those numbers increase in the wake of yet another centralized failure.
Uniswap's code is open source. Thus, virtually every blockchain network has a version of a Uniswap-style DEX. Notable (legal) copies of Uniswap include Pancake Swap on the Binance Smart Chain and Quickswap on the Polygon Network. Many traders prefer these networks for their quicker speed and reduced fees when compared to Ethereum's fees. No matter which network someone chooses to use, there is a DEX that allows them to use decentralized systems and maintain custody of their crypto.