THE EXPLOSION OF DEFI EXCHANGES.

What happened to Centralized Exchanges?

In 2022/2023 we saw many regulatory crackdowns on Centralized Exchanges with so many lawsuits filed against them and their CEOs for example FTX and even more recently Binance. This is no doubt a direct war on the use of Centralized Exchanges to be able to buy crypto assets on spot or trade futures contracts on them. Most parts of the world where they experienced many financial hardships and inflation have turned to cryptocurrency for a bail out (especially the use of Centralized Exchanges) seeing that they could buy assets directly from their banks and also receive currencies from around the world which are known to be stablecoins, then they can go ahead to use a peer to peer function(P2P) on the platform to receive their stablecoins in Fiat currencies. This in a way rendered the dependency on traditional banks almost unnecessary for international payments. Especially when it involves significantly small amounts or extremely large amounts that traditionally would cost 1 – 3% of the funds you are sending while some can even be as high as 6% depending on the difficulty of that region you are sending to. Today I can send thousands of dollars through Centralized Exchanges and I barely feel like I’m being charged..

Will Centralized Exchanges be around for a long time?

The main question here is what purpose will Centralized exchanges serve when they are restricted to which asset they can list for spot or leveraged trading by regulators. 

Cryptocurrency being outside the control or oversight of any single entity, there already seems to be so many enforcements of laws by regulators to crackdown or even outlaw the use of cryptocurrencies. The US Securities and Exchange Commision(SEC) made it clear that they intend to protect investors from scams that have resulted from the bankruptcy of some key Exchanges in the crypto space by creating laws that will limit cryptocurrencies. I can agree with protecting investors but I do hope these laws will not hinder the growing adoption of cryptocurrencies across the globe. 

To answer both questions it is ideal to say Centralized Exchanges are direct competitors to the banking system and the ongoing regulatory scrutiny which is not certain how worse it could get could possibly lead to the extinction of Centralized Exchanges, not literally but in terms of use cases. With the ongoing war on crypto exchanges we should expect access to select crypto  assets and restricted access to certain regions too. 

With this big pending problem, what lies ahead for the retail investors who trade spots and the leveraged traders? 

WHY WE NEED TO UNDERSTAND AND ADOPT DEFI EXCHANGES

DeFi in its natural state means Decentralized which is the reason why they are popular. They simply cannot be touched by any central authority because it is not owned by any entity. But the misconception about DeFi is the fact that it has always been tagged the turf of the degenerates. For me this is an undervaluation of the potential that this model of finance has got to offer. Clearly it has been underused by many in recent years of it’s adoption by those who understand it but it clearly has more use for the long term if only channeled right, it could be the enigma that we might just need to conquer regulatory scrutiny for another lifetime and restore financial power to the people with financial inclusion as a priority. 

CATEGORIES OF DEFI EXCHANGES.

 DeFi exchanges can be categorized based on the type of service they provide, the blockchain they operate on, or the mechanism they use to facilitate transactions. Some possible categories are:

• Lending and borrowing exchanges: Users can earn passive income by supplying liquidity to the lending pools, or access funds by borrowing from them. Some examples of lending and borrowing exchanges are Aave, Compound, and MakerDAO
• Spot trading exchanges: These exchanges allow users to swap one cryptocurrency for another, usually with low fees and high speed. Users can trade directly from their wallets without having to deposit or withdraw funds. Some examples of spot trading exchanges are Uniswap, SushiSwap, and PancakeSwap.
• Insurance exchanges: These exchanges allow users to protect themselves against various risks, such as smart contract failures, hacks, or market crashes. Some examples of insurance exchanges are Nexus Mutual, Cover Protocol, and Armor.
• Arbitrage exchanges: These exchanges allow users to exploit price differences between different markets or platforms, and profit from them. Some examples of arbitrage exchanges are Firebird Finance, OpenOcean, and 1inch. Finally 
• Decentralized perpetual exchanges: They are platforms that allow users to trade perpetual contracts. Perpetual contracts are popular among crypto traders because they enable them to speculate on the future price movements of various cryptocurrencies. Perpetual contracts also allow traders to use leverage, which means they can amplify their profits or losses by borrowing funds from the platform or other users. 

These listed above are only a few of the categories of use cases where DeFi has penetrated.

CONCLUSION

While the crypto space is awaiting more regulatory clarity, it is imperative that investors and traders alike should be ready for the new leap  by implementing the use of DeFi. It can be very complex to use but getting used to it can only be possible by interacting with their different UI/UX interfaces and protocols frequently. They tend to have many advantages over the Centralized exchanges. Even trading derivatives is now possible with DeFi exchanges which is a win for traders. However their interfaces may not be as easy to use when compared to Centralized Exchanges. Something I believe can be worked on in the future.