Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Why Decentralized Exchanges (DEXs) Could Shape the Future of Financial Markets

CryptocurrencyJun 29, 2021 11:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
Why Decentralized Exchanges (DEXs) Could Shape the Future of Financial Markets

The traditional financial ecosystem is built on centralized structures that comprise various stakeholders. Monetary authorities such as the federal reserve and central banks act as the policymakers or rather the pinnacle of legacy finance. Ideally, these bodies make monetary policy decisions that involve money supply and development infrastructure as part of their mandate to keep economies in check.

While the monetary authorities are meant to operate as neutral players, they favour acting governments or influential individuals. This is because the personnel who work for these bodies can be compromised or coerced to make certain decisions. In essence, the fate of a whole country’s economy could be at the hands of a few individuals with personal interests.

Even worse, some authoritarian governments use their monetary authorities to suppress activities that seem to threaten their control. A good example is the People’s Bank of China (PBoC) which has previously issued warnings against crypto operations, slowing adoption in the region. The PBoC is also in the process of developing its centralized digital currency dubbed ‘DC/EP’ that is set to act as the country’s official digital currency.

The Shortcomings of Centralized Architectures

The centralized architecture of today’s financial ecosystem is further complemented by institutions such as banks, investment companies and insurance firms, amongst other third-party service providers. In crypto, centralized exchanges assume the third-party position by acting as the market makers. These platforms provide crypto investors and traders with the liquidity needed to offset their buy or sell positions.

In most cases, centralized exchanges try to give fair and transparent pricing, although this cannot be fully guaranteed. Their centralized nature gives them an upper hand as they can manipulate prices through wash trading or take advantage of the information asymmetry to rip off unsuspecting clients.

Furthermore, these platforms have proved to be unreliable during times of high market activity. Popular crypto exchanges like Binance and Coinbase were overwhelmed during the bull run to the extent of halting their trading systems at one point or another. We have also seen extreme cases where exchanges such as Robinhood abruptly shut down crypto operations in fear of the regulator’s axe.

Finally, it is cumbersome to register on centralized exchanges as they follow strict KYC/AML rules set by local authorities and international bodies like the Financial Action Task Force (FATF). This has sidelined many potential investors in countries such as the U.S, where financial regulators prioritize consumer protection.

Why DEXs Could be the Alternative

The crypto industry has given rise to decentralized innovations, with most currently built on the Ethereum blockchain. This fast-growing crypto niche eliminates centralized architectures by leveraging blockchain technology and smart contracts to create decentralized markets. Some of the upcoming products include lending and borrowing, derivative instruments and decentralized exchanges (DEXs).

DEXs have gained a particular interest amongst the crypto community, especially those looking for alternatives to escape the cumbersome onboarding process by CEXs. These platforms do not rely on third parties for contract execution; instead, the transactions are verified and authenticated on a blockchain network.

Just like CEXs, DEXs feature a trading interface and matching engines that traders can use for their operations. However, the DEX order book follows an Automated Market Maker (AMM) model to ensure liquidity. Until recently, most DEXs could only operate within a single environment – this narrative is now changing with the invention of Direct Access DEXs such as OrionProtocol.

All-in-one DEXs Access

The crypto ecosystem may be young but not short of innovations. DeFi projects like OrionProtocol bridge the integration gap that has long been a challenge to the crypto market. This protocol gives users access to multiple DEXs, allowing them exposure to the best prices at any time. In addition, Orion users can quickly initiate a transaction as there are no KYC requirements.

With Orion protocol, you only need a wallet to buy crypto assets, including Bitcoin, Ether, USDT stablecoins and DeFi tokens such as Chainlink. This can be done in a few clicks, saving you the tiresome process of registering on a centralized exchange while being at the mercy of its centralized infrastructure.

Conclusion

As it stands, both centralized and decentralized crypto ecosystems work hand in hand. However, the paradigm is gradually shifting in favour of DEXs, with more people realizing the value of decentralization. These ecosystems reduce the burden of dealing with third parties and allow users to maintain their privacy or anonymity. In the future, we are likely to see more action in the DeFi market, which currently enjoys a market cap of $66 billion.

On the Flipside

  • Decentralized exchanges are more risky in terms of scammers and fake token issuers. Since DEXes are completely unregulated, such trading platforms are more often exploited by scammers impersonating legitimating DeFi projects.

EMAIL NEWSLETTER

Join to get the flipside of crypto

Upgrade your inbox and get our DailyCoin editors’ picks 1x a week delivered straight to your inbox.

[contact-form-7] You can always unsubscribe with just 1 click.

Continue reading on DailyCoin

Why Decentralized Exchanges (DEXs) Could Shape the Future of Financial Markets
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email