Although it was built on a vision of decentralisation, blockchain technology has since evolved and changed course. Over the years, the need for centralised actors has become necessary, whether it’s for mediating disputes, subduing bad actors, or building a user-friendly experience.
As the industry focuses on mainstream adoption, onboarding processes have to be made simpler. It’s important that Web2 users be able to access crypto apps and wallets as easily as they can set up an email or social media account.
This is difficult to offer via a fully decentralised system. “We want to improve product efficiency and capital efficiency,” says FTX COO Constance Wang. “Centralised exchanges are able to provide the fast speeds which decentralised exchanges [can’t].”
“If you’re talking about building a risk engine or liquidation engine using blockchain technology, it’s too risky right now. It’s too slow,” OKX Director Lennix Lai elaborates further.
With the crypto market being as volatile as it is, there’s no room for latency when it comes to matters such as liquidating positions. Lai believes that blockchain technology has to evolve further before it can be trusted with such processes.
Although OKX and FTX are both invested in the growth of decentralised ecosystems, there’s a long way to go before these can compete with centralised exchanges. “It’s not there yet,” says Wang. “Even if [the chains] are really fast, they can’t match the efficiency of centralised exchanges.”
Do users want decentralisation?
Centralised exchanges have the ability to freeze funds or block transactions as they deem fit. Ironically, Bitcoin — the first cryptocurrency — was created to combat exactly this. In response to the 2008 Financial Crisis, Bitcoin offered a way through which users could transact and store their funds without being reliant on a financial institution.
Among early adopters, this was the primary incentive to buy and use Bitcoin. However, as the crypto space has grown, different motives have come to light.
Many users today treat cryptocurrency as a form of investment. For them, ease of onboarding can take precedence over having complete control of their funds. Signing up to a centralised exchange feels like a familiar process, whereas creating and funding a decentralised wallet requires more time and effort.
“From our perspective, whatever the customer wants should exist and be improved upon,” says Wang. Convenience is a selling point for mainstream adopters, and that goes hand in hand with centralisation.
Growth of the crypto space
As user adoption increases, so do the number of companies competing for a piece of the pie. There are over 500 crypto exchanges operating today, each with their own set of incentives — whether it’s an emphasis on security, staking rewards, or low transaction fees.
FTX is among the top three crypto exchanges today by market share, alongside Binance and Coinbase. The company records over US$1 billion in daily trading volume and has over a million registered users.
Although the increasing competition could pose a threat to this status, Wang doesn’t find it a reason for concern.
“Crypto is damn small right now,” she says. “We can’t fight among each other. What we can do right now is collectively grow and if there are newcomers targeting an unmet market need, that’s fantastic. Why [would we] be afraid of that?”
As per triple-a, global crypto ownership only averages around 4.2 per cent currently. There’s an incredibly large audience which hasn’t yet made its way into the space.
“How we all make money is by growing the space, not by fighting against each other,” Wang reiterates. “This is true among centralised exchanges and also between centralised and decentralised exchanges.”
Crypto and the broader economy
In recent years, crypto prices have become increasingly reactive and correlated to macroeconomic changes. While Bitcoin was once touted as a hedge against inflation, the argument doesn’t seem to hold true anymore.
Wang believes the inflow of institutional money has a lot to do with this. With TradFi institutions now investing in crypto, the market isn’t as isolated as it once was. Along with this, assets such as Bitcoin have become more well-recognised in terms of their legitimacy.
“It’s impossible for a real asset to not have some sort of correlation with the economy and traditional stock market,” says Wang.
That said, market downturns — such as the current crypto winter — have still been a cause for panic among retail investors, even though traditional markets aren’t faring any better. From a business perspective, Wang believes this is an unfounded concern. “It’s all just cycles. When you’re running a business, you have to acknowledge the cycles.”
“When the cycle is down, we take the time to build and when the bull market comes, we harvest.” Wang adds that this is the time to adopt a long-term perspective and start addressing consumer needs which are likely to arise in the future.
Featured Image Credit: Token2049