Some staunch believers claim that doubling down on DEX is the solution as the crypto fortress crumbles. Specifically, decentralised exchanges.
Since Sam Bankman-FTX, Fried’s significant centralised crypto exchange, abruptly collapsed, conventional bankers and investors, have been calling for increased regulation.
On the other hand, some cryptocurrency players are emulating the original crypto vision of Satoshi Nakamoto, the person who created Bitcoin, by eschewing the financial middlemen and turning to decentralised exchanges where traders transact consensus on the blockchain.
Statistics from industry tracker DeFi Llama showed on Nov. 10, as FTX collapsed, overall everyday trading volumes on DEXs, including the likes of Uniswap, jumped as high as $12 billion, their biggest level since May. However, gains have since been reversed.
CryptoCompare claimed four days after, November volumes had eclipsed the entire previous month.
With 97,805 coins moving off platforms in the seven days leading up to November 13, CryptoCompare data shows that weekly bitcoin movement from controlled exchanges, or termed CEXs, posted their largest-ever net outflow.
Varun Kumar, Founder of the decentralised cryptocurrency exchange Hashflow, said it is now obvious that there may be risk involved with retaining assets in a centralised organisation. Users are reportedly opting for decentralised trading alternatives, according to data.
However, DEXs may not always be safer than their centralised competitors, and unskilled investors may be exposed to significant risks.
Instead of routing money through a middleman or centralised authority, users can exchange tokens directly with each other utilizing blockchain-based intelligent contracts.
As a result, just like other decentralised finance (DeFi) or Web3 systems, there is no central authority and, for better or worse, investors are in charge of their transactions, settlements, and coin or token storage.
Contrarily, CEXs like Coinbase (COIN.O), Binance, and FTX are more like conventional exchanges on Wall Street; they act as the intermediary in transactions, making trading easier, particularly for novice investors, and occasionally provide coin custody services, as did FTX.
Many centralised players have also worked to build user confidence through more transparent policies including providing evidence of their reserves.
Requests for comment from Coinbase, Binance, and FTX were not immediately fulfilled.
However, proponents of decentralisation assert that DEXs could provide investors with some security from the type of mischief that appears to have taken place at FTX, where up to $1 billion in user assets are thought to have vanished.
DEXs let users keep custody of their money, they can immediately track trading activities and reserves on the blockchain, and they cannot stop withdrawals.
David Wells, CEO of cryptocurrency exchange Enclave Markets, said which provides both centralised and decentralised services, there are undoubtedly aspects of DEXs that appeal to users since they reduce the likelihood of a malicious operator or a single fact of failure in the system.
Decentralized exchange trade volumes were undoubtedly boosted at the time of the FTX disaster.
In the week of Nov. 6–13, volumes at the biggest decentralised exchange (DEX), Uniswap, increased to $17.2 billion from just above $6 billion the previous week. Other smaller decentralised exchanges also observed increased volumes.
In the week following Nov. 6, when FTX’s problems became public, GMX saw more than $6 billion, which was three times more than its recent weekly averages. On November 9, the day Binance announced a strategy to save FTX, hashflow increased to $110 million from an average daily of $25 million.
Despite the current spike, crypto isn’t moving in large quantities to DeFi swaps, and average DEX volumes have dropped back to levels below $3 billion which was last seen in October.
The entire monthly trading volumes on DEXs were around $181.5 billion and $240.3 billion from the month of August through October, as opposed to a spectrum of $173 billion to $203.5 billion for CEXs, according to data from Chainalysis, indicating a wider, more subtle move toward decentralised exchanges.