Is DeFi Endangering Centralized Exchanges?

  • November 3, 2020
  • Jennifer Moore
Is DeFi Endangering Centralized Exchanges?

As DeFi grows in prominence, with the emergence of DeFi tokens and protocols and its increasing popularity among cryptocurrency enthusiasts, here’s how that reflects on the future of centralized exchanges.

This year so far has been undoubtedly great for DeFi. Decentralized finance grabbed the spotlight and made headlines on multiple occasions for all the right reasons. The recent months have seen the emergence of multiple DeFi tokens and widespread popularity of DeFi protocols among cryptocurrency enthusiasts. In that context, one has to mention the advent of yield farming of crypto, a DeFi protocol based on the smart contract technology that has enabled users to earn great interest in individual digital assets.

Decentralized Finance is riding the high wave, with the market getting crowded and buzzing with myriad forms of financing protocols. Most of these new protocols are competing with each other to provide regular users with meteoric yields on crypto assets. It has become a common occurrence for these financial protocols to advertise double, even triple times the usual crypto interest rates 0.5% which some time ago was considered as high-yields. Although it is true that a significant fraction of these new DeFi protocols will turn out to be unsustainable, nevertheless this DeFi wave is impacting the market trends, the results of which will be visible in the not so far future.

What Makes DeFi So Special?

The creation of DeFi was out of the need to improve the existing financial services devising a unique approach towards the legacy processes. There are particular processes, fee structures, intermediaries, and limitations inaccessibility, which are or can be become redundant in the future. DeFi is of the unique idea that more effective and efficient systems can be put to use.

DeFi apps allow people to trade, lend, borrow and take out loans or insurance directly from one another using a P2P method, which is the foundation of decentralized technology. There is nary a use or interference from third-party entities or mediators. The DeFi boom mimics the early days of ICO popularity that accelerated the crypto movement and adoption. In the same way, the DeFi spurt has spearheaded the deployment of hundreds of applications and tokens this year.

The mission of the most promising DeFi apps is to create a very divergent financial ecosystem that will facilitate more equitable data and capital flows. This will shift the control from institutions to the individual. Nevertheless, even the most sought-after DeFi apps today still overshadow the centralized exchanges. It is a common ordeal or hurdle for most of the emerging protocols. This outsizes the impact and the influence in the blockchain and crypto space, but for how long?

Does DeFi Endanger the Existence of Centralized Exchanges?

The major crypto exchanges at present provide an all-inclusive suite of financial products that mimics that of the traditional markets. Users are allowed to trade, buy, and sell and trade cryptocurrencies, select options & futures trading, make passive income, take out crypto loans, and more with just one login.

In the early days of development, it is quite easy to accelerate the pace of innovation with centralized technology, because the teams work in cohesion to create new features, produce iterations, and fix bugs to improve the user experience. By keeping the focus on ensuring superior user experience along with sophisticated security protocols, the present centralized exchanges thrive due to their ability to create a trusted bond with the users.

When it comes to trust, DeFi has a long battle ahead to win the users for mainstream success. Extensive market studies have shown that the users essentially focus on 3 things:

Stability, Liquidity, and Security.

These attributes ensure reliability from the users’ end. At present, the DeFi protocols are in complication for common users to understand. Combine that with the lack of accessibility and that makes the new protocols take a back seat against centralized protocols, at least for the moment. In recent years, centralized finance platforms and exchanges have evolved to become multi-dimensional and easily accessible, thanks to highly advanced order-matching engines, stable technology, and asset custody protocols.

The concern of centralized exchanges originates and ends with the structuring of robust infrastructure to accelerate and benefit crypto’s future. The creation and development of the foundation is the most essential part. Centralized exchanges have a habit of settling down and becoming stagnant, rather than driving further innovation. Those ultimately become the stepping stones for pilot projects. It is safe to say, that it’s the centralized exchanges that are making the inroads for the advent of DeFi.

It appears that we have reached the defining moment with regard to the DeFi reception. All things considered, the suffering allure of money-related self-care. Decentralization is key to the first guarantee of blockchain innovation. It can expand the opportunity of cash for all who take an interest. Carrying money-related occasions to more individuals than at any other time in recent memory. In that capacity, DeFi gives the terminal directly to the eventual fate of cryptocurrency.


In any case, it will require help from centralized protocols. Which will be, for some users, the passage through which they access DeFi unexpectedly. We accept that the eventual fate of the business lies in decentralization, and with the force expanding. It’s an ideal opportunity to bet everything on it. However, rather than being an endangering innovation to centralized exchanges. DeFi is more of a natural progression drawing its influence from the former, an evolution in the true sense.

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