Author: Lincoln Murr, Mary LiuThe centralized exchange is in trouble. Previously, the U
Author: Lincoln Murr, Mary Liu
The centralized exchange is in trouble. Previously, the U.S. Securities and Exchange Commission (SEC) accused Yuanan and Coinbase of violating a number of laws, and then decentralized competitors "approached" step by step. These competitors focus on various subdivided vertical tracks, such as efficient Stablecoin swap, perpetual contract transaction, universal token swap, etc. This article will compare these three common types of centralized trading functions with decentralized counterparties.
The most commonly used exchange function is to trade one cryptocurrency with another. The cost of Coinbase is very high, ranging from 1.5% to 3%, depending on the size of the order. The cost of coin security is lower, approximately ranging from 0.4% to 0.1%. Coin An once allowed users to pay transaction fees with BNB (Binance's native token) at a 25% discount, but due to concerns that it would make BNB more like a securities attribute, the service has been cancelled. One of the biggest benefits of a centralized exchange is its high liquidity, with a price difference of approximately 1% when purchasing Bitcoin up to $10000.
The largest general DeFi exchange is Uniswap. Surprisingly, compared with its centralized competitors, its decentralized automatic Market maker model provides very similar or even better interest rates. According to the type of trading asset and its volatility, there are three types of transaction fees: 0.05%, 0.30%, and 1%. The liquidity of top assets is very high, such as converting USDC of $100000 to BTC, which is ten times higher than Coinbase trading, with a sliding point of only 0.14%. In addition, Uniswap allows liquidity providers to earn transaction fees from each transaction.
CurveFinance is the exchange with the largest total locked position value (TVL), specializing in the transaction of Stablecoin and other similar assets, charging 0.04%. Some DeFi platforms, such as 1inchNetwork and Matcha, exist solely to summarize the best prices from top DeFi exchanges and provide users with the most favorable prices. In summary, these platforms provide the same experience for ordinary users at similar or lower costs, while also offering more asset options and liquidity options.
A perpetual contract is a type of futures contract, which is an agreement to buy and sell assets at a specific price in the future. Unlike conventional futures contracts with fixed expiration dates, perpetual contracts have no expiration date and can be held indefinitely. Traders often use margin and leverage to obtain high-risk positions, with high likelihood of gains and losses, and bet on asset prices falling. As a US based exchange, Coinbase does not offer futures trading, but the global platform of Coin An charges a fee of 0.015% and a leverage ratio of up to 125 times.
There are currently two mainstream DeFi perpetual exchanges: dYdX and GMX. DYdX is the older of the two, originally built on Starkware, but it is now migrating to its own Cosmos based chain to achieve greater customizability, decentralization, and scalability. GMX is a newer, Arbitrum based DEX, which is famous for promoting the concept of "real field". Instead of simply using its own token to stimulate liquidity mining, it gives users Stablecoin or mainstream tokens, such as ETH, USDT, etc. DYdX allows for up to 20 times leverage and does not charge a fee for the first $100000 of trading volume per month. Then, as trading volume increases from $100000 to $50 million, the fee decreases from 0.02% to zero. GMX charges a fixed fee of 0.1%, which is significantly higher than other options, but provides up to 50 times leverage.
Overall, in terms of spot trading, decentralized exchanges seem to be the same or better than centralized exchanges, while in terms of sustainable trading, centralized exchanges are greater than or equal to DeFi. Another aspect that was not considered was the benefits of decentralization and trust in the platform. On a centralized platform, you must trust the company to fulfill its commitment to secure the custody of funds and allow withdrawals. As we have seen in many cases such as FTX, Mt. Gox and BlockFi, this is far from 100% guarantee. The only way to truly own Cryptocurrency is to store it in the wallet. Decentralized exchanges never keep funds, and Cryptocurrency will never be lost unless the transaction is successfully executed.
However, centralized exchanges do have their benefits. A key service they provide is to convert Fiat money into Cryptocurrency, which is necessary before using any DeFi exchange. In addition, they are simpler to use and may be a better choice for those who do not understand technology.
Although the entry and exit of fiat coins is a challenge, the innovation and competitive advantage of decentralized exchanges are crushing. The regulatory difficulties of Coinbase and Coinan provide an opportunity for decentralized exchanges to "overtake on the bend", and they are likely to take a significant portion of the market share.
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