Centralized crypto exchanges were key to the early adoption of cryptocurrencies. They eased the onboarding process and gave traders and investors a place to buy and sell their digital assets.
Further down the line, during the ICO boom in 2017, which saw the start of thousands of crypto projects, it was mainly centralized exchanges (CEX) that fueled these new cryptocurrencies. So, without a doubt, CEXs have been crucial to the industry and its adoption, and they’re not going anywhere anytime soon.
But if crypto is all about decentralization and ownership, why do CEXs still dominate the crypto game?
Why do CEXes still dominate the crypto game?
Centralized exchanges have undoubtedly been the most popular exchanges in crypto. They allow new investors and traders to easily open positions in a wide range of tokens and digital assets. They are generally well-designed with a user-friendly interface and native applications, making it easy for everyone to get acquainted with 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, which makes these exchanges less vulnerable to market manipulation. Additionally, CEXs support fiat-crypto on- and off-ramps, which is crucial for new users to start their crypto journey.
Apart from being a trading platform, CEX also comes with other important features such as margin trading, crypto derivatives trading, exchange staking, and margin lending. Beyond that, trades on CEX are not executed on-chain, resulting in near-instant settlement at extremely low costs. This means that traders can always stay on top of market trends without worrying about trade execution or costs.
All of these reasons are obvious why new users prefer CEX over DEX, but there’s one elephant in the room that we haven’t touched on yet: gas fees.
What is gas and how does it keep users away from DEXs?
“Gas fees” are transaction fees paid to miners on a blockchain protocol in order to have their transactions included in the block. It is an essential component in the operation of DEXs on any blockchain. In fact, every major decentralized exchange charges gas for a transaction to be successfully completed. However, there is a problem when gas prices increase to the point where they exceed the actual amount traded. And that has been true with popular proof-of-work (PoW) blockchains like Bitcoin and Ethereum.
In particular, Ethereum has seen an astronomical increase in gas fees as it still has the highest demand for transactions. The explosive growth of decentralized financial protocols such as Uniswap has led to an increase in network fees of 470%, reaching a new high on May 11, 2021. According to some reports, a single exchange transaction could have cost up to $300. Even today, at the time of writing this article, only one swap on Uniswap V3 could cost more than $30which is by no means optimal for most users.
Even today, Ethereum’s gas fees are prohibitive and users are forgoing using DEXs. However, there are a few platforms that offer low gas trading opportunities. FibSwap is one such multi-chain DEX that allows traders to trade almost at no cost and at blazing speed. The platform’s goal is to capitalize on the move from Ethereum to Ethereum 2.0, providing effortless scalability, less gas, and less congestion.
CeDeFi is the future
Centralized exchanges, as we are currently witnessing, are not going anywhere anytime soon. In fact, they are beneficial for the crypto industry because without them, it would become nearly impossible to onboard new users into the crypto space. However, it is also crucial that the user interface of decentralized platforms becomes more user-friendly and easily navigable to ensure that users can eventually move from centralized to decentralized platforms and reap the true benefits that DeFi has to offer. .
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