Bitcoin’s long-awaited upside potential and the recent wave of institutional and corporate investors leveraging most of their reserves for Bitcoin (BTC) are all signs that the pace of cryptocurrency popularization is rapidly accelerating: but does the road to mass adoption require privacy and decentralization?
Be aware that your customers and money laundering laws have forced most cryptocurrency exchanges to become more transparent about the identity of users, and those who refuse have had to limit the jurisdiction in which they can offer services.
To operate legally in many countries, many exchanges had no choice but to follow strict anti-money laundering measures, and apart from Monero (XMR), a large number of coins have been removed from most major exchanges.
Lately, regulators have begun to break the whip, and judicial authorities around the world have continued to deploy a series of measures to ensure that investors disclose their crypto assets and pay income tax.
And all this happens when the US Department of Justice arrested the co-founder of BitMEX and charged the CFTC and accused the owners of conducting an illegal exchange of crypto derivatives.
In about a week, the FCA, the UK’s top regulator, went as far as banning derivatives trading on all cryptocurrency exchanges.
All of these maneuvers are designed to enforce the requirements of crypto service providers, and while they may ultimately contribute to mass adoption, many crypto theorists are looking for alternatives to assert their financial autonomy.
Decentralized exchanges may be the solution
A growing number of investors believe that central cryptocurrency exchanges actually operate in the same way as traditional banks. In response, decentralized exchanges such as Uniswap, 1inch, Curve Finance, and Balancer have grown to 2020.
For more experienced investors, there are also decentralized exchanges available that offer derivatives trading. Like traditional derivatives, the cryptocurrency exchanges offering the service act primarily as intermediaries, but the process is slightly different on decentralized exchanges. This is because they use smart contracts instead of a broker and derivative contracts are settled when the terms of the contract are met.
Synthetix is currently one of the most popular decentralized exchanges, and its total closed value surged to $ 1 billion in 2020 before a sharp sector-wide correction resulted in a decline in TVL and daily active users on most DEXs. …
General locked value in Synthetix. Source: DeFi Pulse
The exchange allows users to create a tool called “Synth” that can track gold, fiat currencies and cryptocurrencies. It also allows you to create assets that track the price of an asset in the opposite direction.
Platform users can also participate in using the original SNX token as collateral to raise new funds, and as with Uniswap, those who provide the funds are rewarded as a fraction of the currency transaction fees.
Those familiar with DEX, such as Uniswap, know that literally anyone can contribute a new asset, which, in the case of derivatives, means that any underlying asset can be converted into a derivative.
These platforms allow users to trade derivatives without having to deposit money to any central platform and are not required to complete KYC procedures.
While some investors avoid KYC and tax compliance, this is a major concern for crypto service providers. Compliance is an issue for centralized crypto service providers, not DEX, according to Molly Wintermott, an anonymous developer credited with creating Hegic DEX.
When asked how DEX can meet the requirements of financial regulators, Wintermott simply explained in unique slang that:
“They can not. This is a new level of financial infrastructure, not the addition of 2z to the current economic system. It’s like TCP / IP or FTP, not the first decentralized crypto exchange. You Can’t Stop The Z-Code Or Block The Internet “Unless the public blockchain is open and open. So it is almost impossible to ban decentralized derivative protocols.”
Wintermott also explained that decentralized financial derivatives are attractive to a certain group of investors for the following reasons:
According to Wintermute, the number of investors who actually use DEX is very small in comparison.