The essence oflies mainly in their ability to attract trading the plethora of ERC-20 tokens that have flooded the crypto market in recent time. They facilitate trading in these tokens for end users while projects get exposure and are recognised in the space. However, despite decentralized exchanges are springing up, majority of users in communities backing crypto projects still clamour for assets to be listed on centralized platforms. Why?
Self-explanatory, convenient and safer to use without a central point of failure or attack and not even all decentralized exchanges issue native assets to use their systems. Rather, they just want to serve the purpose for which they are created to be: a true peer-to-peer exchange platform that will do away with the use of centralized exchanges. As convincing as this may sound for many in the crypto space to want to embrace, it is just not happening yet.
Why avoid decentralized exchanges
Most crypto users started with centralized exchanges hence they still prefer them over decentralized ones because they are ignorant of what decentralized exchanges have to offer. Many users are still not well-versed in understanding what peer-to-peer means as a concept that resonates with the ideology behind cryptocurrencies like Bitcoin – especially its elimination of a trusted third party.
The absence of a third party structure may scare some of those that want to use decentralized exchanges of the responsibility that goes with it. It takes self-education about decentralized exchanges before using them to enable taking precautionary measures to safeguard and properly manage their assets. Instead, they prefer a service they can interact with and can lift the responsibilities of managing roles on a peer-to-peer basis without a third party involved off their shoulders. Someone has to take the blame.
While these two factors are somewhat correctable by individual users, the only and major downside to decentralized exchanges as at this point is the lack of enough volume for their platforms. This condition would only improve with time as more users sign up on the market after doing away with their ignorance and being educated.
From centralized to decentralized
The trend shows that it is gradually becoming a market share game hence we are going to see more centralized exchange operators incorporate decentralized platforms into their operations – Binance has started doing it and Coinbase is planning same for its US market. The potential in its future outlook is huge. It has the ability to make exchanges grow their customer base more so as centralized platforms cannot accommodate many new tokens/coins hence the slow process of listing assets on exisiting exchanges.
Offering trading in a decentralized format saves the exchanges the stress, time and expenses of having to create centralized wallets for each token (sometimes hundreds) to be listed on their platforms. Decentralized exchanges save the operator the hassle of having to go through some legal hurdles that the financial environment may require e.g. the debate over utility or security tokens in the U.S. It is a long term game that many potential crypto entrants will get to meet. Also, the crypto market space would have improved by then. No one knows when.