Yesterday CZ, CEO of the leading centralized exchange Binance, announced that the decentralized version of Binance DEX is expected to launch on mainnet later this month. Binance announced its intention to launch a decentralized exchange that will offer non-custodial and trustless trading a few months ago. DEXs for long have been facing issues around low liquidity and high-latency in trade execution, causing crypto traders to continue to use centralized exchanges which offer more efficiency. That being said, with the growing number of hacks we are seeing with centralized exchanges, DEXs have put the marker down once again as a relatively safe platform for trading with their non-custodial feature set. In our view, Binance has understood that there exists a dedicated user base that wants to use DEXs to trade and their Binance DEX is a solution to cater to those users. Binance DEX reportedly can handle volumes that are orders of magnitude higher when compared to incumbent DEX platforms, which are hamstrung by Ethereum’s limitations on transaction throughput. Binance is launching its own blockchain (based on the tendermint protocol) to support the DEX platform and is supposedly interoperable, meaning it can support cross blockchain trades, a feature that only centralized exchanges have and that current DEXs cannot support for a while yet. After having taken over the centralized exchange market in a short period of time, albeit with some nifty regulatory arbitrage, can Binance do the same to the currently struggling DEX markets?
This is the issue Binance will face; even with a DEX that is 10x superior in terms of tech, it is still centralized, in a manner that a 0x or a Uniswap are not. As we have seen with Microsoft v Linux, or with Encarta v Wikipedia, motivated distributed teams building out, sometimes, competing code bases around a core platform will in the long run beat out traditional profit-seeking corporations! And Binance necessarily does not cater to the hard core DEX user. There is a regulatory arbitrage angle here that Binance gets from a DEX - it can claim that it is not responsible, for instance, if someone from the US swaps a security token on Binance DEX with say, someone from Singapore, using VPNs for instance. There is definitely plausible deniability here, but when you are the 800-pound gorilla, you have a pretty big red X on your back, it is safe to assume. DEX is therefore likely a defensive play, an optionality, similar to Coinbase’s acquisition of Paradex.
Btw, we are quietly excited by the progress that our own Fordex
has made within a few weeks of its launch; it is now among the top 5 0x relayers globally, with daily volumes between 15-20k. This is hugely promising, as this volume is completely organic, with no wash trades, zero marketing, minimal PR and no market-maker engagements. We have covered DEXs a fair bit earlier, including here
, and believe they are foundational to the emerging DeFi stack.