Despite the recent collapse of the central cryptocurrency exchange (CEX) FTX, JPMorgan’s analysts led by Nikolaos Panigirtzoglou believe that such exchanges will continue to dominate the entire crypto environment as trading platforms face several challenges.
First, financial systems (DeFi) are highly dependent on CEXs to function properly and “it may take a long time until the middle of the process of finding value in the crypto market changes from centralized exchanges to DeFi,” the group wrote recently. information to customers. They added that DEXs are not suitable for large investors because of their limited speed or “their trading methods and the size of the system to be visible on the blockchain.”
For (on-chain) DEXs, since everything is traceable on the blockchain, it is impossible to add funds without raising interest. This is what FTX (off-chain CEX) allegedly did when it loaned half of the client’s funds to its company Alameda Research in order to support risky bets.
Although overall trading on DEXs seems to have increased in recent weeks, the initial change is due to the reduction that occurred after the collapse of FTX, the group explained. Bernstein expressed this in a statement last week, saying that the end of FTX and putting crypto self-control, which allows users to keep their tokens instead of relying on foreign exchanges, “returns.”
Also, the DEX trading volume last month reached the highest level seen since May, rising to $ 103.84B in November against $ 57.6B in October, data from DeFiLlama showed, indicating a decrease in confidence in CEXs. Galaxy Digital (OTCPK:BRPHF) founder and CEO Mike Novogratz said the FTX debacle is a “body blow” to the crypto industry’s confidence and trust in the system.
But JPMorgan is still looking at opposing views, noting the absence of DEX limits / suspension of operations, the risk of smart contracts (hacks and protocol attacks), their need for excessive integration, and the inclusion of assets in payment pools.
“Risk/return trading [is] difficult to evaluate in DeFi due to the use of different tokens in terms of assets borrowed or borrowed / loaned sent / received interest and given the absence of limits / suspension of operations, “the document read.
Bitcoin (BTC-USD), the world’s largest digital token by market value, fell sharply 7.3% in the days following the FTX filing on November 11, although almost all of those losses have been erased at the time of writing. All in all, however, the sign was still down 70% from the peak of November 2021. See why Seeking Alpha’s sponsor Vincent Ventures thinks that “FTX’s pain is bitcoin’s gain.”
Fellow SA analyst Craig Pirrong weighed in on the DeFi-CeFi debate, saying the collapse of FTX doesn’t mean the stability of the crypto market is wrong, but instead showed a “very bad direction” for the series.