Despite FTX’s demise, Centralized Crypto Exchanges Will Remain Powerful, Predicts JPMorgan

According to the bank’s researchers, it would probably take a while before price discovery moved from centralized to decentralized exchanges because Defi protocols rely largely on centralized exchanges to operate.

Despite FTX's demise, Centralized Crypto Exchanges Will Remain Powerful, Predicts JPMorgan
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JPMorgan disagreed with certain crypto-native experts who anticipated a shift toward decentralized platforms in the wake of FTX’s failure and predicted that centralized exchanges would continue to control the majority of global digital-asset trading volumes.

According to the bank’s strategists, led by Nikolaos Panigirtzoglou, slower transaction speeds, asset pooling, and order-traceability aspects of decentralized exchanges (DEXes) are expected to restrict institutional participation. As additional barriers to widespread adoption, the analysts listed the lack of a limit order/stop loss feature on DEXes, their reliance on price oracles that draw their data from centralized exchanges, their susceptibility to hacks and exploits, the requirement for over-collateralization, and systemic risks from the cascade of automated liquidations. Given the use of various tokens in terms of assets borrowed or lent, collateral posted/received interest payments, and the general absence of limit order/stop loss capability, the team noticed that it was more difficult to evaluate the risk/return trade-off in Defi (decentralized finance). It’s difficult to manage, govern, and audit Defi protocols while maintaining adequate levels of security and centralization.

Decentralized exchange activity has increased since Sam Bankman-centralized Fried’s exchange FTX failed. According to DefiLlama data, this month saw the biggest monthly trading volume on decentralized platforms ever at $97.22 billion, an increase of 68% from last month.
Many observers interpreted that as a sign of dwindling trust in centralized exchanges and the start of a protracted shift toward democratized finance.
We anticipate greater DEX adoption among market participants in the coming months, according to CryptoCompare’s Hosam Mahmoud, who stated in a report released on November 23. “Users’ confidence in CEXs has been shaken following the collapse of FTX, and the resilience DEXs have shown to the market contagion.”

JPMorgan acknowledges the recent increase in DEX trading volume but does not believe it to be the beginning of a significant long-term trend.
Although there has been a slight increase in the percentage of DEX in recent weeks’ overall crypto trading activity, the bank’s analytics team claimed that this was more likely due to the recent crash in crypto values and the deleveraging/automatic liquidations that came after the FTX collapse.

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