Centralized Exchanges Are Becoming Irrelevant | Will Uniswap V3 Deliver the Killing Blow?

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Centralized Exchanges Are Becoming Irrelevant  Will Uniswap V3 Deliver the Killing Blow?.png

Since the WLEO launch, I've been spending on a lot of time on the Uniswap platform. Using different aspects of it, learning about the different projects leveraging it and more recently; reading about the future of Uniswap in a macro sense.

Uniswap is an incredibly interesting platform. It has shaken up the entire crypto space as it leads the change from CEXes to DEXes - Centralized Exchanges to Decentralized Exchanges.

Centralized Exchanges have already started taking drastic measures to try and take back some of the volume and liquidity that Uniswap and other DEXes have drawn out of their platforms. Almost every major CEX - including Binance - have recently launched some form of "Yield Farming" "DeFi" "insert_buzzword" aspect into their exchange.

Some of the dumb money seems to be flowing toward these projects, but the smart money (and the vast majority of capital) remains in the true DeFi protocols. Open source platforms that aren't built on the back of a centralized corporate entity.

Recently, I talked to a relatively large Centralized Exchange about listing WLEO. While I'm not completely against the idea of listing with an exchange like that - as it would provide a great deal of liquidity, volume and legitimacy to our project - I have started to realize just how impactful the DEX movement is on this crypto world.

Wash trading and market manipulation is far from new in the crypto space, but I got in contact with some pretty well-known people in the space recently and I asked their advice about listing WLEO with a CEX.

Most of them had an answer resembling the same underlying idea:

Listing on a CEX is no longer worth it. All they offer you is fake volume and "market making"

The exchange that I won't name offered to list WLEO for 1-2 BTC. Their listing "packages" ranged in price based on the type of "market making" we wanted for WLEO.

I pushed back a bit as they provided more details. Trying to fish out more about what they were selling. These exchanges will do just about anything to encourage you to list with them. Including - but not limited to - offering you fake market making.

The DEX movement is making them very desperate.

Uniswap V3 and The Future of Crypto Trading

A lot of the advice I got surrounding future steps for WLEO was to focus on Uniswap. Focus on driving volume and liquidity to the decentralized exchange that has become the powerhouse of crypto trading. While listing on a CEX is not totally out of the question - they are absolutely right.

DEXes offer a lot of things that CEXes can't.

The major complaint I see about trading on Uniswap are the fees and the complex structure of trading. People are accustomed to trading on orderbooks the whole LP structure is confusing to many people.

Additionally, paying $3 - $30 to make a single trade can make it hard for people to actively be involved in different trading pairs.. especially when they're not using thousands of $ per trade.

Uniswap V3 is said to be around the corner - although, we'll have to wait on the edge of our seats for an official release date - and will aim to solve many of these issues and more.

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The founder of Uniswap tweeted this out back in February and talked about the broader vision of Uniswap and what the major versions accomplished in the past and will accomplish in the future.

In a couple of other Twitter threads and resources about the miscellaneous mentions of Uniswap V3, you can find a lot of info about these updates. One thing that we might also see in V3 is the inclusion of Optimistic Rollups.

I won't go into the technical details of all the things I've heard about - especially since we still don't know exactly what is and isn't true about V3 - but I will say that if V3 addresses the high gas fees, slippage and other inefficiencies that are present in V2, the CEXes will be in major trouble.

In my opinion, the only thing keeping CEXes in business are:

  1. Ease of Use
  2. Lower Fees

As time goes on, I think the CEXes will continue to lose more and more business to protocols like Uniswap. We're still in the very nascent stages of what's possible with AMMs (automated market makers) and the more I use Uniswap, the more bullish I become about this DEX narrative. It's a true revolution - an imperfect one, but a revolution nonetheless.

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(Edited)

Making orders should come as well.

Providing right incentives for LPs on DEX in a sustainable manner seems far better option than most of the CEXs.

Not to exclude every one of them, and something to think about.

Having a community around the project is a reason plus to play the LPs incentives game.

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CEXes will continue to lose more and more business to protocols like Uniswap.

DEX are the Future

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Centralization of everything is going to become a thing of the past. Luckily we are on the ground floor of it. :)

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UNISwap really changed the game, but the nickel and dime fees are brutal. Especially when the fees start breaking $10.

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Exactly. I thought I had been a complete chump playing around with moving 1000 WHive in and staking it and paying fees I don't even want to add up to do it.

Only the air drop of UNI has more than made up for that!

As far as actual active trading, Uniswap is hopeless, it's woefully uncertain what will happen when you hit buy and the fees make it very expensive for small trans.

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I've had pretty good luck on almost all my swaps, but the fees kick you in the junk.

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Very true. Uniswap V3 is aimed at solving these issues. I may write another post on Optimistic Rollups and the possibility that Uniswap will integrate something like that to reduce the overall fees

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If ETH can actually reduce their fees sub 6 cents like Vitalik promised, it could be amazing. I have my doubts though, especially when it comes to scaling. A simple transfer can take minutes, and a contract action hours not to mention you pay $10+ for that transaction to boot. Very discouraging, but there is just so much money on the table right now.

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As time goes on, I think the CEXes will continue to lose more and more business to protocols like Uniswap. We're still in the very nascent stages of what's possible with AMMs (automated market makers) and the more I use Uniswap, the more bullish I become about this DEX narrative. It's a true revolution - an imperfect one, but a revolution nonetheless.

There is perhaps no better way to put it as you have done. DEX are the future of crypto exchanges for many reasons that you have already stated in this fine article. I am shocked that the listing fee can be as high as 1-2 BTC. I wonder how much it will cost to get wLEO listed on exchanges such as Binance. Well, we will see how things evolve in the days ahead.

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How do we not yet have a DPOS chain with true smart contracts? Maybe v3 will be on a whole new chain.

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The exchange that I won't name offered to list WLEO for 1-2 BTC

I find this hilarious, each time confronted with it.

  1. Did they charge Satoshi to list BTC?
  2. To add a contract address in your admin panel and write an announcement post?
  3. (Queue cost of IEO which often serves only to pump their own token)

CEX have seen this coming for eons and knew the DEX writing was on the wall. That’s why always more CEX are launching their own “DEX” and will also invest in protocols similar to Uniswap to be integrated on it. It will become always harder — for the average user — to identify the DEX from the “DEX” in the next few years.

The good thing is that centralized DEX will have to start to actually provide value beyond “automated market making liquidity and volume”.

Interesting times ahead.

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Hive actually is best platform to implement DEX without all the problems that UNISWAP has. Unfortunate part is - we have yet not implemented smart contracts on hive. As soon as smart contract is available on hive - we will see hive-engine exploding

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It's about damn time we start sticking it to the CEX's they've been marginalizing crypto for years now and forcing projects to bend the knee. NOw that DEX"s are getting better I hope we start a bank run on these guys and expose their rehypothecation and abuse of OTC trades and off-chain transactions.

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I feel you man but you know, I still think that Cexes are relevant. They make crypto accessible for "outsiders" and that to me, is also good for the game !ENGAGE 20

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I feel you but you know what? Fuck them kids, if they want to use CEX’s let em, I ain’t got no problems with it! You want to hump the diseased village bicycle by all means, I’m here for the premium hard to get ass

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Yeah I definitely think there's a place for CEXes. Just like there's a place for index funds in the traditional world - they yield worse returns but are generally easier to use and "safer" for the average people that don't know what they're doing.

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Thank you for your engagement on this post, you have recieved ENGAGE tokens.

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100%. These CEXes are in deep shit and they're starting to realize it. I laugh every time I see one announce some new form of yield farming

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The only other thing I think Cex's have over Dex's is as fiat onramps. An often overlooked but important function.

Dexs are the future, but fiat to crypto is still a problem.

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Yeah fiat to crypto is still an issue. Although, plenty users do need to go from crypto to fiat.

Right now it seems the tech is all in place, regulation is the issue. Hopefully we'll see this change soon

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In my opinion, the only thing keeping CEXes in business are:

Ease of Use
Lower Fees

I agree! Great news about Uniswap V3 plans (and rumors).

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It'll take a bit more than just reducing fees to remove Cexes though. Cexes actually make it easier for normies to get their first crypto, whereas, with Dexes, you need to actually be in the game before you can use it. A typical example is with Binance and Naira(Nigeria). You can buy Bitcoin and Eth directly with bank transfer or your atm card, because Binance created a tailor-made approach to help people in this country access crypto. Will Uniswap and other Dexes create an approach to bridge this gap?

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Who once said this? ( Andreas?)
"There are two types of CEX exchanges - those which have been hacked, and those which WILL BE hacked"

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(Edited)

Who once said this? ( Andreas?)
"There are two types of CEX exchanges - those which have been hacked, and those which WILL BE hacked"

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It is absolutely time for DEXs to give CEXs some serious competition, along with some reasons to streamline their operations and not just rest on their proverbial "laurels."

But it's also early days yet. It's a nascent industry and marketplace. In some ways, I keep thinking about the early days of the "organic" movement... most people could appreciate the idea, knew it was better, yada yada... but relatively few were willing to seek out a market that had organics ("convenience" and "ease of use") and pretty few people aside from some stalwart pioneers and rabid followers were willing to pay $2.00 for an apple that was $0.50 elsewhere (the "fees issue"). Today — at my local Safeway, which is about as mainstream as it gets — there are a number of veggies where you can't even buy a non-organic version, anymore.

However, right now? ABSENT the allure of the airdrop and the novelty factor... it's just too complicated and too expensive for most people, particularly casual and occasional small traders. And it doesn't work for the small people who just want to turn $25.00 they saved in the change jar on their nightstand into some Hive to power up their blogging account.

In 2-3 years from now? Everything will probably have been tested and tweaked to the point where the DEX systems become accessible to a wider range of users.

=^..^=

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@khaleelkazi, nice post!

In my view, the high gas fees are one of the key obstacles for the DEXs. If the fees drop then DEXs will easily displace the CEXs.
Sometimes I think that a DEX on HIVE, or other PoS blockchain with close to 0 fees will be able to challenge the CEXs.

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True. However, for those CEX to remain relevant, they would need to innovate and have products that could be integrated into our daily activities. One of those exchanges would be non-custodial exchange like Changenow. If they could innovate like this, they would remain relevant.
I doubt if DEX like uniswap could do this

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It is still a bit to early in the day to put the final nails into the CEX coffin.

For me, it is the fees that is the issue. Being able to scalp on the CEX's with modest capital is what puts me off Uniswap and other similar protocals.

I am getting a hardware wallet next month so that I can finally interact with Uniswap more safely. I Can't trust Metamask with the recent hacks.

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