JPMorgan said the majority of global digital-asset trading will continue to take place on centralized exchanges, unlike some crypto-native experts who predicted a shift towards decentralized platforms with the collapse of FTX.
The flaws of decentralized exchanges
Since FTX went bankrupt, many consumers have expressed doubts about the long-term viability of centralized exchanges; JP Morgan assures that such a transition won’t happen anytime soon.
In a Thursday note to clients, the bank’s strategists led by Nikolaos Panigirtzoglou said that slower transaction speeds, pooling of assets, and order tracing will likely limit institutional participation.
Furthermore, the analysts noted that DEXs lack a limit order or stop loss feature, are dependent on price oracles sourced from centralized exchanges, are vulnerable to hacks and exploits, require over-collateralization, and pose systemic risks due to automated liquidations cascade.
The reason behind the prediction
A number of experts believe that decentralization platforms will solve the scandal caused by FTX rather than regulation.
As a result of Sam Bankman-Fried’s failed centralized exchange FTX, decentralized exchange activity is accelerating, with DefiLlama data showing up to $97.22 billion in trading volumes this month, the highest since May.
Although JPMorgan acknowledges the uptick in DEX volume, the bank does not believe it marks the beginning of a long-term trend.
“While there has been some increase in the share of DEX in overall crypto trading activity in recent weeks, this is more likely to reflect the collapse in crypto prices and the deleveraging/automatic liquidations that followed the FTX collapse,” said the bank’s analyst team.
On Twitter, crypto users commented on why centralization is better than decentralization.
“They’ll remain dominant because they’re easy to use. People will follow the path of least resistance. If we want them to go to DeFi, make DeFi as easy to use or easier,” said one Twitter user.
They'll remain dominant because they're easy to use
People will follow the path of least resistance
If we want them to go to DeFi make DeFi as easy to use or easier
— The Crypto Consensus (@CryptoConsens) November 28, 2022