{"id":134982,"date":"2023-12-06T08:48:30","date_gmt":"2023-12-06T08:48:30","guid":{"rendered":"https:\/\/www.techopedia.com"},"modified":"2023-12-07T17:47:20","modified_gmt":"2023-12-07T17:47:20","slug":"experts-roundtable-what-dexs-must-do-better-for-adoption","status":"publish","type":"post","link":"https:\/\/www.techopedia.com\/decentralized-exchanges-adoption-challenges-expert-panel","title":{"rendered":"Experts Roundtable: What DEXs Must Do Better for Adoption"},"content":{"rendered":"
Binance, one of the most prominent cryptocurrency exchanges<\/a> in the decentralized finance<\/a> (DeFi) industry, was recently hit with one of the biggest fines in crypto<\/a> history. As part of its plea deal, the company is set to pay a $4.3 billion fine, and its co-founder and former CEO, Changpeng Zhao<\/a> (CZ), had to step down from his position.<\/p>\n Following the Binance debacle, Bittrex Global, another crypto exchange, has decided to stop its operation in the United States<\/a>.<\/p>\n The murky Proof of Reserves<\/a> and ensuing lawsuits and regulatory uncertainty of CEXs have led many people to leap to decentralized exchanges<\/a> (DEXs).<\/p>\n So we ask the experts: What can DEXs learn from their centralized cousins in 2024?<\/p>\n DEXs manage to solve several problems either caused or suffered by CEX centralized exchanges (CEXs) like Binance and FTX.<\/p>\n A large part of that is removing the centralized \u201cmoneypot\u201d and authority, David Bleznak<\/a>, the managing partner at Draper Goren Blockchain<\/a> (DGB), told Techopedia.<\/p>\n \u201cIn an ideal world, there would be no central entity to incur penalties or fines if the DEX is actually decentralized. However, in practice there are usually parties involved in getting the DEX off the ground or even further operating some critical infrastructure (see Uniswap<\/a> Labs).<\/p>\n <\/p>\n These entities can follow the law and continue to forgo hosting front-ends that facilitate trading of fraudulent tokens or other prohibited activity.\u201d<\/p><\/blockquote>\n Anndy Lian, the author of NFT: From Zero to Hero<\/em><\/a>, added that the recent Binance news highlighted how important decentralized exchanges are for cryptocurrency.<\/p>\n \u201cBinance is facing legal challenges from various regulators around the world, who accuse the platform of violating financial laws and facilitating illicit activities.<\/p>\n <\/p>\n “This has raised concerns among users about the security, privacy, and accessibility of their funds and data on centralized platforms. DEXs, on the other hand, offer a more decentralized and trustless alternative, where users can trade directly with each other without intermediaries or censorship.\u201d<\/p><\/blockquote>\n Moreover, DEXs allow users to have access to a much more comprehensive range of crypto assets and services like derivatives<\/a>, lending, and non-fungible tokens<\/a> (NFTs) that may not be available or compliant on centralized platforms.<\/p>\n Regulatory compliance is one of the most crucial aspects DEXs must remember to prevent a recurrence of events similar to those surrounding Binance, Lian told Techopedia.<\/p>\n Adhering to regulatory standards ensures legal scrutiny and oversight, fostering trust among users, exchanges, and authorities.<\/p>\n Lian stressed:<\/p>\n \u201cWhile DEXs may not have a central authority or entity that can be held accountable, they still need to respect the laws and rules of the land, especially when it comes to anti-money laundering, counter-terrorism financing, consumer protection, and taxation.\u201d<\/p><\/blockquote>\n Unfortunately, the recent events surrounding Binance have forced an array of negative headlines to circulate in the cryptocurrency industry; however, the fact that the Binance case has been settled provides some stability and certainty within the space, Ben Weiss, the CEO and co-founder at CoinFlip, noted.<\/p>\n \u201cThe issues facing Binance have shown that where a company is based won\u2019t impact the basics of sanctions screening and AML\/KYC.<\/p>\n <\/p>\n “I believe decentralized exchanges are going to also be expected to perform the basics of AML\/KYC and sanctions screening, and just because an exchange is decentralized doesn\u2019t mean governments won\u2019t expect their laws and regulations to be followed.\u201d<\/p><\/blockquote>\n Lian added that DEXs could use the Binance case as a case study to strengthen their operations by implementing appropriate measures and mechanisms to ensure AML\/KYC compliance, geo-blocking, governance, and auditing. Moreover, DEXs can also collaborate and communicate with regulators and policymakers to ensure nothing goes unnoticed.<\/p>\n DGB\u2019s Bleznak said:<\/p>\n \u201cIt has taken a long time for the true (crypto) believers to accept that code is not law… law is law<\/strong>, and we have not just a responsibility but an obligation and civic duty to uphold the rule of law.<\/p>\n <\/p>\n It is important, no matter how decentralized we make these systems, to keep this perspective. Further, we should all act morally outside of the rule of law and choose not to cut corners or let our greed get the best of our decision-making.\u201d<\/p><\/blockquote>\n According to Lian, one of the key challenges faced by DEXs is the lack of awareness and understanding among users about the risks and benefits associated with decentralized trading, which is why educating users is another key aspect DEXs must consider.<\/p>\n \u201cDecentralized trading can offer users more freedom, choice, and control over their assets and transactions, but it also requires more responsibility, knowledge, and skill.<\/p>\n <\/p>\n “Users need to be aware of the potential pitfalls and dangers of decentralized trading, such as volatility, liquidity, slippage, scams, and bugs. Users also need to be familiar with the technical aspects and mechanisms of decentralized trading, such as wallets, keys, gas fees, swaps, and pool.\u201d<\/p><\/blockquote>\n However, this can be easily achieved through \u00a0\u201ccomprehensive guides, interactive tutorials, and community engagement initiatives,\u201d DGB\u2019s Bleznak explained.<\/p>\n Another initiative DEXs could consider is partnering with educational platforms and influencers in the digital assets industry, which could broaden their reach.<\/p>\n However, because DEXs leverage the power of smart contracts<\/a>, staying up to date with the latest technological developments is another key aspect DEXs should keep in mind in the new year, CoinFlip\u2019s Weiss added.<\/p>\n \u201cThe biggest challenges for DEXs are related to the user experience, such as complicated interfaces and thin liquidity.\u00a0 That said, DEXs are innovating rapidly such as by using layer 2<\/a> solutions to increase scalability and capacity.\u201d<\/p><\/blockquote>\n In addition, DEXs can also leverage emerging technologies like Layer 2 scaling solutions, sharding, and cross-chain interoperability to address some of the current challenges they may face, like high transaction fees, network congestion, and limited asset diversity, Bleznak said.<\/p>\n \u201cImplementing these technologies can enhance the user experience by reducing transaction costs and improving transaction speeds.\u201d<\/p>\n CoinFlip\u2019s Weiss noted that DEXs \u201chave a lot of potential to democratize finance\u201d because they eliminate the intermediaries present in traditional finance and are especially important in countries that have historically had little banking and financial infrastructure.<\/p>\n \u201cDEXs are harder to navigate than CEXs from both a user learning curve and user interface perspective.<\/p>\n <\/p>\n “That said, because the wallets are non-custodial, DEXs can be a more secure option than a CEX but only if the user has the sophistication level necessary to navigate a platform that will more likely have a complicated interface and require knowledge of crypto.\u201d<\/p><\/blockquote>\nBinance Plea Deal Highlights Importance of DEXs in Crypto Space<\/span><\/h2>\n
DEX Regulatory Compliance – A Must<\/span><\/h2>\n
Education and Staying Up-to-Date Are Key<\/span><\/h2>\n
DEXs Have Big Potential to Democratize Finance<\/span><\/h2>\n
DEXs Can Strike a Balance Between User Privacy and Security<\/span><\/h2>\n