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Revisiting Centralized v Decentralized Exchanges


Satoshi&Co Daily Crypto Newsletter

August 1 · Issue #218 · View online

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While most cryptocurrencies have enjoyed strong returns in 2019 so far, one particular category of tokens that has had a great year is centralized exchange tokens.
Native tokens of leading crypto exchanges such as Binance and Huobi have outperformed BTC significantly, posting 366% and 343% respectively in YTD returns. Contrasting those numbers with those of DEX tokens highlights the plight of DEXs currently. In a year where almost virtually every cryptocurrency has yielded positive returns, leading DEX tokens such as 0x and Bancor have posted negative returns YTD. 
It is quite puzzling and also quite obvious at the same time. First the puzzling bit; In the wake of all the centralized exchange hacks, it was assumed that trustless, peer-to-peer exchanges with self-custody would see significant traction. Moreover with DEXs, the KYC/AML bars were also assumed to be lower. See our coverage on DEXs here and here.
However, that is not quite how this has turned out. Centralized exchanges are doing more than just matching orders by incentivizing users to hoard exchange tokens by offering rebates on trading fees and eligibility to participate in IEOs. And the bull run in 2019 that saw a surge in trading volume aided centralized exchanges even more. On the other hand, DEX tokens are still struggling to come up with unique incentive structures for users to use DEX tokens. Decentralized platforms’ efforts to provide non-custodial trading interface for users is well-intentioned, but technical challenges pertaining to speed and UI/UX remain, resulting in trivial trading volumes.
The gulf between centralized exchanges and decentralized exchanges seems to be widening and we expect this trend to continue for a while in the near term. Even Binance recently launched a DEX to cover that flank, and also added some typically jazzy marketing involving tokens for good measure. FATF regulations from the latest G-20 guidelines also seem to suggest that any DEX operator that faciliates trades through their venue is liable for making sure that all is kosher with participants on the venue, i.e, KYC/AML requirements will be required.
Perhaps users ultimately still prefer convenience over decentralization; especially with the UI and the speed advantages that centralized exchanges have over their DEX counterparts.
However, we remain bullish on the long-term future of DEXs. DEXs capture the true power of blockchains and smart contracting. Centralized Exchanges are not ‘crypto-native’, they are a traditional market construct that has been force fitted into the blockchain paradigm.  DEXs are completely trustless, peer-to-peer and have modularization that lets platform developers separate the platform from the regulatory aspects such as fiat on-off ramps and KYC/AML filters. In an era of rampant hacks and assaults on privacy, DEXs provide an element of true anonymity, much like SSL (Secure Socket Layers) did in the early days of the internet, truly kicking off e-commerce and transactions on the internet. UI is already improving, with metamask launching a mobile wallet soon, and 0x for instance has announced a slew of upgrades including a liquidity reward for market makers and governance feature through staking ZRX tokens.
DEXs will allow for the use of smart contracts to programmatically bring together multiple facets of decentralization that define the new era of distributed finance (DeFi), such as lending and borrowing, leveraging, automated credit assessment (Dharma, Compound, DyDx, Bloom, SALT, ETHLend, etc). We eagerly await the next iteration of current (and emerging) DEX protocols.
Meanwhile in Crypto Wonderland....
“Kraken Acquires Interchange”
Cryptocurrency exchange Kraken has just acquired a firm offering a way for institutional investors such as hedge funds and asset managers to better manage their portfolios. The exchange announced Tuesday that it has bought Interchange, an accounting, reconciliation and reporting service provider that it says offers an “institutional-grade” service. Interchange notably boasts as co-founders Dan Held, formerly director of product at wallet (and now crypto exchange) provider Blockchain and co­-founder of ZeroBlock, and Clark Moody, founder of Blockchain acquired bitcoin trading platform RTBTC. Kraken’s new acquisition aims to provide institutional investors better tools to monitor and report their crypto portfolios.
“Spankchain Launches A Payment Processor For Crypto”
Ethereum-based adult entertainment platform SpankChain has launched a cryptocurrency payments processor together with two new partners. An announcement published on July 31 reveals that the new service — dubbed SpankPay — is being launched with its first two integration partners: the adult entertainment industry fan platform JustFor.Fans and SkypPrivate, an anonymity-focused service that connects models and their clients via Skype and Discord. SpankPay will enable users to use a host of cryptocurrencies — including BTC, ETH, LTC, Zcash, Monero and others — for instant transactions and 1-click purchasing for adult products and entertainment, and offers merchants a 0.5% processing fee to use the service.
“S7 Airlines Processes Over $1 Million On Blockchain”
S7 Airlines, an aviation major that is a part of the worldwide aviation group Oneworld, has reportedly processed more than $1 million via its blockchain payment platform in the month of July, 2019. In total, it has processed more than $4 million via the same blockchain-based system since the month of January this year. This data was intimated to the public through an official press release published on the 30th of July. The release also informed us that the airlines company has seen substantial rise in the number of transactions processed through the blockchain platform of late. It has really been reaping the benefits of its blockchain-based sales network, which had been created in collaboration with Alfa-Bank, the largest private bank in Russia.
“Cannabis Stablecoin Project Incubated Into Arizona FinTech Sandbox”
Arizona, home of the first U.S. FinTech Sandbox, has admitted another cryptocurrency startup into the program that is designed to ease regulatory burdens for entrepreneurs in the financial technology space. According to a statement released by Attorney General of Arizona, Mark Brnovich, ALTA becomes the seventh firm to be inducted into the regulatory sandbox. On its website, ALTA describes itself as a “digital payment club where cash-intensive businesses pay each other using digital tokens instead of cash.”
Crypto Twitter Pick
Erik Torenberg
Who are the ppl in your career who took a chance on you?

Who either put their time, reputation, or even money on the line to open doors for you?

I'm inspired by ppl who cosign others & help them break in, & want us to recognize those ppl, so we encourage more ppl to do the same
What We Are Reading / Listening To
Overnight Performance of Top 10 Currencies
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