1/ A thread on the problems with CEX's and DEX's.👇
A huge issue in blockchain is that 99% of trading occurs on centralized exchanges (CEX's). The problems with CEX's are that they have a central point of failure, they require users to give up sensitive personal info,
A huge issue in blockchain is that 99% of trading occurs on centralized exchanges (CEX's). The problems with CEX's are that they have a central point of failure, they require users to give up sensitive personal info,
2/ governments can easily shut them down, and hackers can steal everyone’s tokens if they gained access to the exchange’s private keys. This has already happened numerous times in the past.
3/ CEX's are also overcharging for listings and trading fees and are only listing coins they invested in or have a personal bias towards. A decision from a top exchange to add a token can make or break the value of the token.
4/ In a decentralized world, everyone should be in possession of their own private keys. Decentralized exchanges (DEX’s) are a solution to these problems but right now they only make up a small percentage of the trading volume for crypto currencies.
5/ The leading DEX’s however have many centralized features; most companies are building hybrid DEX’s (HEX's?), which basically means "non-custodial", because they think it is a “good enough” solution to make a great UX.
6/A true DEX should be non-custodial, have decentralized file storage on IPFS instead of AWS, have decentralized DNS on Handshake, not require KYC, not be able to be subpoenaed by governments to block geographic areas or be shut down, and shouldn’t control which coins get listed.
7/ Many of these platforms also have a central power that holds the private keys to pseudo smart contract wallets, and can freeze funds if anything goes wrong, which makes them vulnerable to hackers.
8/ Existing cross-chain DEX’s also lack trustless 2-way pegs between chains and instead use trusted 1-way pegs, which they control and can be hacked.
9/ The only fully decentralized exchange is OasisDEX, where the trading functionality is entirely on-chain & charges zero fees. Currently, the front-end is open source and can be run locally, but there are plans to move the front end to IPFS. Unfortunately the UX is terrible.
10/ Liquidity, throughput, latency, and high on-chain gas fees in order to post orders seem to be the big problems to solve in order to create a great UX and have fully decentralized exchanges see widespread adoption.
10/ Teams around the world are actively working on solving these problems. For the time being, a hybrid DEX that at least offers a trustless non-custodial solution that can’t be hacked will likely become the leading cryptocurrency exchange in the near future.
11/ This thread was inspired by IDEX adding KYC and blocking NY, the EtherDelta founder being charged by the SEC, and the countless centralized exchange hacks I have seen over the years.
