Bybit Mastermind Live ICYMI: CEXs vs. DEXs, and Their Roles in Crypto Markets of the Future

Trading has been one of the most common use cases of cryptocurrency, and for many, trading crypto and digital assets has become part of everyday life, though everyone may have different trading preferences. What are some of the latest technologies and measures that can improve the trading experience, and how are these latest trends shaping the future of crypto trading?

In the first episode of Bybit Mastermind Livestream series, we discussed the current state of centralized and decentralized trading, user preferences and the future of CEXs and DEXs.

This edition of Mastermind Live ICYMI recaps the Mastermind livestream (in case you missed it), offering comprehensive expertise and insights from leading figures in the crypto industry.

Our Oct 17, 2024 livestream hosted figures from both CeFi and DeFi backgrounds, as well as members from the trading community joining our livestreaming. Our guests were as follows:

• Yakov Lebedev, Chief Business Development Officer, 3Commas

• Nadim, Bitsgap Coach, Bitsgap

• Iris Xia, Business Development, 1inch Labs

• Kevin Law, APAC Director of Business Development, CoinDesk Indices (CDI)

• Idriss Zitane, Degen Trader

Key Takeaways:

• CEX operators have been working hard to increase their platforms’ transparency, while DEXs have focused on attracting professional traders and institutional liquidity.

• Professional traders still prefer centralized trading platforms for crypto trading, due to deeper liquidity and higher regulatory clarity, while retail traders seem more open to DEXs primarily for their wider product selections, especially meme-related products.

• Centralized and decentralized trading platforms primarily complement each other, as opposed to one form of platform attempting to replace the other.

Current State of CEXs and DEXs

The broader trading landscape in crypto has been rapidly changing after many issues and security incidents. Our panelists highlighted that measures such as proof of reserves could improve the transparency of centralized trading platforms. 

On the other hand, some DEX operators have been increasing their efforts to improve product design, offering a smoother user journey and trading experience, making it more comparable with their centralized counterparts and lowering the entry barriers to onboarding new users.

From a trading volume perspective, the panelists agreed that CEXs are still dominating, despite the strong growth in DeFi and decentralized platforms. Liquidity could be one of the reasons behind this volume gap: most institutional traders generally trade with larger volumes, and prefer trading with centralized platforms for their deeper liquidity.

User Preferences: CEXs and DEXs

Although CEXs may dominate the overall trade volume, the panelists highlighted that users of CEXs and DEXs could simply consist of two fundamentally different user profiles. While CEXs appeal more to institutional users and trading newbies, DEXs are more conducive to advanced users and DeFi enthusiasts.

The panel also discussed the potential of more institutional traders adopting DEXs, which could be challenging. First of all, the trading environment and products on CEXs are very close to what they used to see in the TradFi world, while DEXs may not be the easiest to use at first glance. Besides the issue of liquidity (mentioned earlier), regulatory concerns also seem to be a legitimate reason as to why trading on decentralized platforms could be tough: institutional traders are often bound by their mandates and jurisdictions, making it simply too difficult for them to trade on DEXs under the current regulatory framework.

However, for some experienced retail traders, DEXs could be more appealing in terms of product selection, especially when it comes to meme coins and NFTs. That's because most of the hottest meme coins in the market had their first launch on DEXs or decentralized launchpads, and these retail traders would be able to enjoy the most significant upsides if they could pick out the winners. In contrast, CEXs often require a more extended procedure when it comes to listing meme coins, making it less appealing to speculation-focused retail traders.

The Future of CEXs and DEXs

The panel’s experts also contributed their views as to what future centralized and decentralized trading will be like. Panelists agreed that it's likely we’ll be able to see a hybrid model in the near future, in which CEXs could adopt more features from decentralized platforms (such as noncustodial wallets and gasless bridges) to offer even greater transparency. On the other hand, DEXs could onboard more KYB-ed market makers to provide more liquidity. Technology will also play an important role in the future of crypto trading in general. New advancements, such as Layer 2 (L2) scaling solutions, may improve the efficiency of general crypto trading. 

Most of our panelists also believe that regulation will play a more significant role in crypto trading, and that it will affect both centralized and decentralized trading platforms. Compliance costs will grow for CEXs, leaving them free to serve only specific jurisdictions with specific products. For DEXs, embracing regulation seems inevitable, although it's unclear what that will look like. However, greater clarity on a DeFi regulatory framework could open doors for institutional adoption of decentralized trading.

Conclusion

The Bybit Mastermind series aims to provide valuable insights through in-depth discussions with crypto and web3 experts on topics and issues that advanced and professional users care about. 

As part of the recent livestream, Bybit held an exclusive event that offers viewers a chance to win a share of the 30,000 NOT token prize pool. 

Stay tuned for the next Mastermind livestream.