Centralized crypto exchanges were key to the adoption of cryptocurrencies in their early days. They eased the onboarding process and offered a venue for traders and investors to buy and sell their digital assets.
Further down the line, during the 2017 ICO boom, which saw the debut of thousands of crypto projects, it was mostly centralized exchanges (CEXs) that powered these new cryptocurrencies. So, without a doubt, CEXs have been crucial to the industry and its adoption, and they aren’t going anywhere anytime soon.
But if crypto is all about decentralization and ownership, why do CEXs still rule the crypto game?
Why CEXs Still Rule the Crypto Game?
Centralized exchanges have unquestionably been the most popular exchanges in crypto. They make it simple for new investors and traders to open positions in a wide range of tokens and digital assets. They are typically well-designed with a user-friendly interface and native apps, allowing everyone to gain exposure to the exciting world of crypto trading.
Additionally, since CEXs are well-known and used by a large number of active users, they have a higher trading volume than DEXs, making these exchanges less vulnerable to market manipulation. Moreover, CEXs support fiat-to-crypto on and off-ramps, which is crucial for new users to begin their crypto journey.
Apart from being a trading platform, CEXs also come with other important features like margin trading, crypto derivatives trading, exchange staking, and margin lending. Beyond that, trades on CEXs aren’t executed on-chain, which results in almost instant settlement at extremely low costs. This means traders can always stay on top of the market trends without worrying about trade execution or costs.
All of these are obvious reasons why new users prefer CEXs over DEXs, but there’s an elephant in the room that we haven’t addressed yet: gas fees.
What’s Gas and How It Drives Users Away from DEXs?
“Gas fees” are transaction fees paid to miners on a blockchain protocol in order for their transactions to be included in the block. It is a critical component in the operation of DEXs on any blockchain. In fact, every major decentralized exchange charges gas for a transaction to be completed successfully. However, there is a problem when gas prices rise to the point where they exceed the actual traded amount. And this has been true with popular proof-of-work (PoW) blockchains like Bitcoin and Ethereum.
Particularly, Ethereum has seen an astronomical rise in gas fees as it always has the highest demand for transactions. The explosive growth of decentralized financial protocols such as Uniswap led network fees to rise by 470%, reaching a new high on May 11, 2021. According to some reports, a single swap transaction could have cost up to $300. Even today, as of the time of writing, a single swap on Uniswap V3 could cost over $30, which by no stretch is optimal for most users.
Even today, Ethereum’s gas fees are prohibitively expensive and users are stepping back from using DEXs. However, there are a few platforms that are providing low gas trading opportunities. FibSwap is one such multichain DEX that is enabling traders to trade at nearly no cost and at lightning speed. The platform’s goal is to capitalize on the shift of Ethereum to Ethereum 2.0, providing effortless scalability, reduced gas, and lower congestion.
CeDeFi is the Future
Centralized exchanges, as we currently witness, are not going anywhere soon. In fact, they are beneficial to the crypto industry because, without them, it would become almost impossible to onboard new users into the crypto space. However, it is also crucial that the user interface of decentralized platforms becomes more friendly and easily navigable to ensure that users can eventually transition from centralized to decentralized platforms and reap the true benefits that DeFi has to offer.