While centralized exchanges are thought to be safer and more efficient, proponents of decentralized platforms like Tim Shan insist that user experience on decentralized exchanges has improved. In addition, inherent benefits associated with decentralized exchanges such as the self-custody of assets make look more appealing than centralized exchanges.
Decentralized Exchanges Closing the Gap
Despite seemingly possessing the edge over centralized exchanges (cex), according to Tim Shan, the COO of Dexalot, decentralized platforms still come short when it comes to the number of users or the volumes traded. Part of the reason for this is that cex platforms are often perceived to be safer and perhaps much faster and cheaper to use than decentralized exchange (dex) platforms.
Although being slower and more expensive is “not a good combination for dexs,” Shan insisted in his written responses sent to Bitcoin.com News that ongoing innovations and improvements are helping decentralized platforms bridge the gap. In addition, Shan believes the inherent benefits of decentralized finance (defi) platforms such as self-custody make dex platforms more appealing than even the most trusted centralized exchanges.
Besides arguing the case for dex platforms, the Dexalot COO also shared his thoughts on the regulation of the blockchain and crypto industry particularly in the wake of industry-shaking incidents such as the collapse of FTX. Below are Shan’s responses to the rest of the questions sent by Bitcoin.com News.
Bitcoin.com News (BCN): Why do users, especially the inexperienced ones place their trust in centralized platforms over decentralized exchange (dex) platforms?
Tim Shan (TS): Well, I think there are two main drivers here. First, this is still a nascent industry, and the average crypto investor is still more familiar with online brokerage and banking accounts. Centralized platforms give them that familiar experience, where investor assets are held by them, transactions are fast and cheap, and there’s an appearance of safety.
Also, it’s sort of human nature for people to “follow the herd,” especially if they see big daily volumes or TVL [total value locked] and a lot of hype on crypto Twitter from executives and influencers. Obviously, we saw last year that perceived safety was not warranted for several big centralized entities and many large and small crypto participants were badly impacted.
I think a second hurdle blocking the mass migration from cex to dex [platforms] is the ease of use of wallets. Although I myself use Metamask today, it’s just not user-friendly enough. When crypto can build products for a different demographic, like kids and the elderly, then those barriers will come down for everyone.
Right now, using a wallet is still like the early personal computer days, where too much of complicated technical features are revealed on the front end when they really shouldn’t be seen by the average user. With that said, new wallets like Avalanche’s Core solve many of the pain points I just mentioned and drive new user experiences that will help to “grow the pie”.
BCN: What lessons can decentralized platforms learn from their centralized counterparts which can potentially help them gain more users?
TS: There’s a technical disadvantage that dex [protocols] have vs cex [platforms]. Decentralized exchanges operate on blockchains and depending on which blockchain a dex is built on, users will probably experience slower speeds and higher transaction costs than at centralized exchanges. Slower and more expensive is not a good combination.
However, blockchains are constantly improving and one such chain is the new Avalanche subnet. This subnet allows crypto projects to create their own customized blockchains for specific use cases, such as more transactions per second, faster overall speed, lower and almost non-existent fees, and performing compliance checks.
Not only do these blockchain innovations substantially reduce the gap between decentralized exchanges and centralized exchanges, but they also come with meaningful benefits inherent with defi, such as users holding their assets in their own crypto wallets. There’s no need to trust a company and its employees to hold your assets. And there’s full transparency of activities on the blockchain.
BCN: How do you think the regulatory landscape will evolve for the Defi space and could bad decisions by regulators push the industry, and innovation, back by a few years?
TS: For us defi projects, this is the big question. So far, regulators have mainly focused on centralized platforms since they already have quite a bit of experience dealing with entities that custody client assets like banks and brokerages. If you think about it, there’s very little difference between a cex and a brokerage in how they operate. Both provide custody services for client assets, provide clients with an ability to trade, and both can use some to all client assets for their own gains, like short-term investments or lending.
However, defi is a different animal given there is no custody and users are interacting with smart contracts that are open source. I think what regulators will do is not so much go after defi but the instruments that are transacted on it, such as stablecoins and others, by categorizing them as “securities.”
BCN: Why did you choose to build Dexalot on Avalanche?
TS: We feel Avalanche offers unparalleled blockchain technology that gives sub-second speed (time to finality) as well as allows for app-specific horizontal scalability via subnets.
BCN: You’ve launched a subnet on Avalanche. Can you explain what it is and how it would benefit users?
TS: A subnet is essentially a standalone blockchain that offers all the technical features of Avalanche but with only Dexalot built on it. This allows us to optimize the chain in such important areas as security, speed, gas cost and compliance. The subnet also allows us to easily integrate with multiple chains. We launched an integration with Avalanche’s C-Chain and we also plan to integrate with other chains over the next several months.
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