Blockchain-based lending and trading systems known as "decentralized finance," or DeFi, have dominated recent cryptocurrency-market headlines, with collateral locked into the semi-automated platforms surging 10-fold this year to more than $9 billion.
DeFi trading platforms like Uniswap, Curve and Balancer have appealed to cryptocurrency traders with their low cost and ease of use, and they're now starting to steal a growing and no-longer-negligible share of market trading volumes from bigger, established exchanges like Binance, Coinbase, Huobi and OKEx.
These "centralized" exchanges – the term is sometimes tossed around with a sneer – are rolling out new business initiatives they describe as decentralized, in an apparent bid to cash in on the trend and stanch a further exodus of customers.
Huobi, a Chinese-led cryptocurrency exchange based in Seychelles, announced Tuesday it is adding 10 new members to its DeFi initiative, described as “a consortium of centralized and decentralized financial services providers.”
The announcement came just a day after Huobi's arch-rival, OKEx, which is also Chinese-led but based in Malta, said its OKExChain network was the most decentralized public blockchain powered by an exchange.
And last week, Binance, the world's biggest cryptocurrency exchange, announced an integration of its centralized trading platform with its decentralized public blockchain, Binance Smart Chain (BSC).
Binance CEO Changpeng "CZ" Zhao even seemed to acknowledge the threat during his company’s recent "World of DeFi" summit, where he said, "It’s always better to disrupt yourself than having somebody else disrupt you first." Running a decentralized exchange is cheaper, according to CZ.
And OKEx CEO Jay Hao told CoinDesk in an email that “it’s impossible to ignore the compelling promise of DeFi, and we are firm believers that it will succeed.”
Charts of bitcoin held at big exchanges show declining balances over the past several weeks, and Simon Chen of the Hong Kong-based crypto trading firm Babel Finance says one likely explanation is that some of the cryptocurrency is getting transferred to DeFi.
In August, DEXs accounted for a 5% share of total crypto exchange volumes, according to a Sept. 14 report by the cryptocurrency-analysis firm Messari. The business is dominated by the "automated market makers" Uniswap, Curve and Balancer.
"The exchange business has proven itself to be incredibly lucrative for crypto and automated market makers are starting to receive their slice of the pie," Messari analyst Jack Purdy wrote in the report.
Binance's CZ said he will be "really happy on the day when decentralized exchanges replace centralized exchanges," at least partly because the company's BNB digital tokens "will be worth much more."
Su Zhu, CEO of the cryptocurrency-focused investment fund Three Arrows Capital, told CoinDesk in a Telegram message that centralized exchanges could still be a "gateway to DeFi, but not where users ultimately spend their time."
"The centralized exchanges will end up acting like a white label," Zhu said.
Bitcoin's dip remained well supported ahead of the Federal Reserve's rate decision, due at 18:00 UTC.
The cryptocurrency found buyers below $10,700 during the Asian trading hours, but so far has failed to cross Tuesday's high of $10,940.
The cryptocurrency may rise above the $11,000 mark if the Fed announces more stimulus measures, having cut rates to zero, launched asset purchase programs and signaled tolerance for high inflation earlier this year.
Analysts, however, expect the Fed to maintain the status quo and reiterate willingness to do more if required. According to BK Asset Management's Kathy Lien, the focus will be on the Fed's inflation and growth forecasts. The dollar will likely draw bids, pushing gold and bitcoin lower, if the central bank raises growth forecasts.
- Omkar Godbole
Filecoin (FIL): Futures on decentralized data-storage network's forthcoming token, currently at $18.50 in tether (USDT) terms, are trading "well above our cost basis," investment firm Pantera Capital says.
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