Decentralized exchanges are undoubtedly the exciting development of cryptocurrencies. DEX facilitates trading cryptocurrencies directly between users, without the need for a reliable broker. This, in turn, allows users to save their money.
However, while DEX has its advantages, it still lacks regulatory requirements and scalability, which are major factors that could shape the future path of the cryptocurrency industry. Central exchanges will continue to play a major role in this ecosystem, providing the depth of liquidity needed for the growth of the wider crypto community.
Benefits of KYC central exchanges for users
DEXs are generally unregulated and do not require their users to review a “Know Your Customer”. DEXs can be peer-to-peer markets run by blockchain and managed by smart contracts, but many people mistakenly believe that DEXs are not responsible.
In today’s environment, it is increasingly unlikely that DEX will avoid regulations or remain undetected by regulators, especially as customer protection is becoming increasingly important in this area.
Centralized exchanges take center stage in this regard, as they are already subject to the rules and most of them have KYC checks. For example, an exchange’s central verification process is a unified goal of compliance with “Know Your Customer” laws and regulations, anti-money laundering and terrorist financing. These security measures counter illegal transactions and improve the security of the platform wallet.
To provide users with more convenient and faster trading
Despite their increasing popularity, DEXs tend to have less volume and liquidity than central exchanges. Having adequate liquidity helps central stock exchanges with large market volatility and volatility.
Such high liquidity can be found on exchanges like Bitfinex, which have the highest liquidity for Bitcoin (BTC) and Ether (ETH). Fundamental strength and depth of Bitfinex’s liquidity were most evident in the 24 hours on March 12 and 13, when Bitcoin’s price fell 50%. It was reported that Bitfinex represented most of the high-level trading volumes in the BTC / USD and BTC / Tether (USDT) markets during this period.
While DEX offers solutions without storing and managing everything in the chain, the fact that every order and transaction is posted in the chain leads to the likelihood that blockchain contract operators will be ahead of user transactions. This can hinder the individual trading experience as well as the growth of the crypto community.
Central exchanges will continue to embrace cryptography
DEX still has room to grow in terms of scalability due to its limited capacity.
Some of the fastest blockchains claim to process up to 50,000 transactions per second. However, this can be misleading, as this number cannot imply a throughput of 50,000 transactions per second per pair or product listed. If more than one product is listed, capacity may be reduced to 500 transactions per second per product.
As more users use DEX, this could lead to network delays, increase network fees as shown in Ethereum, and make it difficult to scale the blockchain.
Meanwhile, centralized exchanges have proven themselves to be highly performing and scalable infrastructures, and their connectivity supports a number of strategies, including high-frequency trading. This allows for the centralized exchanges to attract the professional investors and institutional investments the cryptocurrency industry needs for eventual expansion and collective adoption.
On the topic: Institutional investors’ interest in decentralized finance
In fact, Central Exchanges tore apart a page from the DEX book and introduced features like non-storage solutions. These hybrid solutions enable centralized exchanges to provide high performance and self-service benefits, while meeting regulatory requirements.
As DEX is gradually finding its place, it is evident that central exchanges will continue to evolve and play a major role in driving the crypto industry and community in the coming years.