The question, "Can centralized exchanges (CEX) really be replaced by decentralized exchanges (DEX)?" is a common sentiment that lives in the Web3 space.
Similar questions like, "Can DeFi replace CeFi?", "Can Web3 replace Web2?", "Can Bitcoin replace the dollar?" are all questions that need to be looked at more closely.
Andrew Weiner, VP of MEXC, saw on the contrary, that although these are all different focuses and elements, they strongly complemented one another. It was not an either-or relationship, but rather about finding synergy to a seamless cohabitable transition.
Andrew noted: "In a world of varying communities, it is hard for one technology subset to fully replace another. It is more about how each ecosystem can coexist and functionally operate to its best use case for each end user."
In the instance of DEX "vs." CEX, most DEXs are mainly used as an exchange, adding liquidity, and staking. It belongs to the DeFi track, and all actions occur in the Web3 world. (Note the emphasis on "exchange" and not "trade")
On the other hand, CEX provides spot, futures and ETF transactions. Most traders who use CEX can realize profits by buying high and selling low through spot transactions. They can also use futures to hedge market risks or conduct futures transactions in the direction of market variables to lock in profits. These are similar to traditional financial markets and belong to the behavior of the Web2 world.
On December 5th, Uniswap, the largest CEX on Ethereum, had a 24-hour transaction volume of approximately $512 million USD and a total TVL value of approximately US $3.07 billion USD. The transaction volume of $512 million USD was generated by the demand for "exchange", not from the trading thinking of "buying high and selling low" or "fund hedging".
As a result of platforms such as Uniswap, Curve, and Aave, users can make profits by providing token liquidity (determined by the AMM market-making mechanism), or staking tokens to obtain income.
However, DEXs cannot directly deposit fiat legal currency, so it is necessary to purchase "intermediary assets" in CEX fiat legal currency like through Binance and MEXC - currencies such as ETH, USDC, etc., and then deposit them to the Web3 wallet before participating in DeFi. CEX is more like a bridge between Web2 and Web3, providing convenience for traders to enter and exit these two worlds.
Transactions on CEX belong to the secondary market, while DEX is more of a primary market. Therefore, tokens on DEX also need to be listed on CEX. Many project tokens, especially DeFi projects, are mainly used in DeFi scenarios before they go online on CEX, and their liquidity and market value are usually low.
"As more users and crypto adoption amasses on CEXs for the utility of secondary transactions, more tokens will be necessary to generate greater value due to trade volume." Andrew concludes, "We live in an exciting time where we need to build for the retail user - bringing the best of all worlds together."
This post is commissioned by MEXC and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.
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