Problem
MarketMove was created to solve the main issues currently plaguing crypto:
- Ease of use. Buying crypto, especially lesser-known, low-market-cap coins, is onerous right now, which slows down the adoption.
- Safety. While there are lots of legitimate, valuable crypto projects, there are also fraud cases in the industry, and even advanced users can fall victim to them.
- Ownership of Assets/Decentralization. Most of the crypto trading volume goes through centralized exchanges (CEXes), to whom users grant custody over their assets. Using CEXes is convenient, however, the exchange may deny access to the funds at any time, or fall victim to a hack, causing the funds to be irreversibly lost.
People who want to invest in crypto can choose between two types of exchanges – CEX and DEX, which stand for Centralized and Decentralized Exchange. Further in the paper, you will find a more comprehensive view of both types of exchanges. For now, let’s focus on their main difference. Both serve as an online brokerage for trading digital assets but they’re fundamentally different in how they handle investors’ funds.
- CEXes operate on a custodial framework, meaning that they have full access to users’ private keys and, subsequently, assets.
- DEXes use a non-custodial framework, meaning that investors never give up control over their funds and private keys. For DEXes, it’s impossible to pause withdrawals or take funds from your wallet, even if the exchange itself terminates its operations.
This is precisely why CEXes are prone to cyberattacks, while DEXes are by definition unhackable. Despite this, centralized exchanges remain more popular.
It can be surprising especially if you take into account CEXes’ history of proving to be undependable.
In 2021 alone over 20 of the attacks carried out exceeded the value of $10 million in stolen funds. Often thieves are even more successful:
- In early December of 2021, one of the top exchanges became subject to a successful hacker’s attack. Almost $200 million in assets were stolen. The exchange then paused all withdrawals and deposits for 3 days, leaving users in the dark as to when trading would resume.
- In August 2021 there was a security breach on Liquid Exchange resulting in $71 million lost funds.
- In January 2022 one of the most prominent service providers on the market suffered an attack in which assets valued at over $30 million were taken from its users accounts.
This is not acceptable – investors’ funds should at all times be protected, accessible to them, and immune to human errors.
Centralized exchanges (CEX) are the most popular and easiest way for traders to buy and sell crypto. They typically have fiat onramps in the form of bank transfers and credit card purchases. These exchanges provide a gateway for people who don't have access to stablecoins or altcoins, allowing them to purchase cryptocurrencies with USD, EUR, GBP, etc.
However, with centralized exchanges, you have a third party that can shut down your account at any time for any reason. Even Binance, the largest crypto exchange in the world, has been known to pause withdrawals due to backlogs, update errors, system maintenance, etc. It is also not uncommon for a centralized exchange to fall victim to a hacker stealing users' funds, which are then often irrecoverable.
Few factors make CEXes more alluring for crypto investors, especially novices. The most important of which are:
- User-friendliness and user experience. This is the biggest advantage CEXes currently have over DEXes. They present themselves in a professional, approachable manner. They’re intuitive and easier to use, offering a relatively low barrier of entry.
- Higher trading volume and liquidity. CEXes dominate the market, meaning more users and more trades happening, which leads to higher volume and higher liquidity in comparison to DEXes. For example, Binance holds over 4x volume of all top DEXes.
- Transparency. Most CEXes are fully transparent, meaning they are licensed. Also, information on registration and management is publicly available.
Nonetheless, the pros entail several, major disadvantages:
- Security. When trading on CEXes, investors virtually give up custody over their assets. As mentioned above, this makes CEXes prone to hacker attacks and therefore, theft. Centralization is also what puts the entire infrastructure at risk of downtime and malfunction during which users are unable to access their accounts.
- Strict regulations. Because CEXes are legal entities they have to adhere to financial regulations. They are at risk of a government shutdown (which happened already in China, among others). There is always a possibility of regulators’ interference of various kinds.
- Fewer listed tokens/coins. Investors who choose to trade on CEXes have to give up variety. Since CEXes care about their reputation, they usually list tokens of a certain volume. This is a major disadvantage, as the biggest gains in the crypto market are usually made on newly launched cryptocurrencies.
Decentralized Exchanges (DEX) are quickly becoming a popular way for crypto users to securely trade and exchange their digital assets without the need for a centralized platform. The idea is that trading happens directly between users (peer-to-peer) through an automated process. No third party is needed within this transaction, which eliminates the risk of fraud or third-party seizure.
The number of decentralized exchanges is growing and they may replace centralized exchanges soon, because there are many advantages to decentralized exchanges: they are transparent, they allow you to control your money, they are anonymous, etc.
The main advantages of DEXes include:
- Broader access to tokens. Usually, it takes time for new tokens to establish their credibility. Listing on a DEX is simple and automated, while CEXes have a longer vetting process, and reputable CEXes usually refrain from listing low market cap tokens, which hinders their growth.
- Anonymity. While virtually all CEXes require extensive KYC procedures, DEXes allow trading to anyone with access to the blockchain.
- Earning incentives. Supporters and holders of any crypto listed on a DEX can earn passive income via yield farming. Most CEXes only offer limited earning opportunities on a subset of their traded crypto via their staking solutions, often with an unfavorable rate.
However, that comes at a cost:
- Difficulty setting up. Let’s be honest, virtually all DEXes are unintuitive and difficult to use.
- Not every token listed is safe. The automated listing process makes it easy to produce counterfeit tokens that look virtually identical to their real counterparts. Even an advanced user can easily fall victim to such schemes.
- No onramp capabilities. In order to trade on a DEX, one still needs to buy crypto elsewhere - usually on a CEX. So it’s unlikely someone ever uses a DEX without starting out with a CEX.
While a convenient entry point for crypto investing, CEX’s reign won’t last forever. While providing a better user experience and lower technical entry barrier, security is one of the biggest challenges for CEXes. Recent events show that the business model is unsustainable on such a large scale.
The future of DEXes is heavily dependent on their ability to attract new users. One of the most important aspects in these terms - user experience - is on a very low level among most DEX providers. Another issue is the technical expertise required to hit the ground running with all advantages of using a DEX. Most providers offer their services on a single blockchain, often assuming that a user is able to navigate through a complicated interface and instantly understand displayed numbers and statistics. On the other hand, centralized exchanges offer a wide range of tutorials that help their users get the ball rolling.
At MarketMove, we believe no one should hold your funds hostage and that centralization is against the very idea of crypto. CEXes will never be able to guarantee independence and security at the same time.
MOVE X is the solution – we aim to deliver a perfect hybrid between DEXes impeachable security and independence, and CEXes user friendliness and educational aspect.
Last modified 9mo ago