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2022 proved to be a year rich in huge shocks and cryptocurrency project bankruptcy. Following each event, the prices of assets fell at the same time. The latest crisis was no exception: the transition of FTX, the fourth biggest cryptocurrency exchange, into a full-fledged bankruptcy in a matter of days stunned investors.
On November 8 and 9, Bitcoin (BTC) and Ethereum (ETH) plummeted by more than 20% and over 30%, respectively. Currently, the price of Bitcoin is trading around $17,000, the lowest level since November 2020. The so-called “altcoins” did not perform much better. For example, Solana (SOL) plummeted by more than half, despite the fact that in addition to the enormous number of FTT, the Alameda fund had a major stake in this token.
Part of the crypto community sees the FTX scenario as an illustration of how straying from the goals of maximal decentralization upon which Bitcoin was founded endangers the whole industry. The dominance of stock exchanges and other centralized organizations results in an over-dependence on people, similar to the previous financial system.
What does the future hold for cryptocurrency exchanges?
One of the major issues raised by the current turmoil is what the future holds for digital asset exchanges, particularly centralized exchanges (CEXs).
CEXs are now facing a massive uphill fight, particularly with low revenues and more regulation on the horizon. Given the present situation, an increasing number of individuals are leaning toward and will continue to draw toward self-storage and custodial alternatives.
Due to their own nature, such centralized mediators are untrustworthy. CEXs will always have a place, but they will play a modest part in the crypto economy in the long term. Of course, nothing compares to the significant role they have played so far.
According to some experts, institutional interest in decentralized exchange (DEX) trading has already increased significantly. By this time, he had stressed that his DEX-focused gains for his customers were $8 million only a few months before (in September), but had grown to $11.8 million in the following months, indicating a 50% increase despite the global slaughter.
Similar thoughts are shared by Robert Quartli-Janeiro, director of the strategy at cryptocurrency exchange Bitrue. He notes that the demise of FTX may and should be seen as a watershed event for the industry, forcing exchanges to become more professional and open in their everyday operations: “It’s incumbent on exchanges to provide a better experience to crypto investors. They must become better and more trustworthy places to trade. Not all will make it, but those real pedigrees will survive. It’s also important to remember that the role of exchanges is to protect investors’ funds and provide a market — not be the market. FTX got that wrong.”
Will DEXs be able to fill the void?
Most analysts feel that as long as centralized exchanges like Binance (BNB) and Coinbase (COIN) retain respectable balance sheets, they have no reason not to profit from their rivalry. However, these major crypto organizations will feel the heat of competition from DeFi protocols in the future, particularly as many individuals have now begun to notice the inherent difficulties connected with trusted intermediates.
Many more CEXs may soon start investing in DeFi versions of their CeFi devices. It will be difficult for them, though, since corporations have long created goods tailored for self-service and DeFi.
It is also worth noting that much evidence suggests that new opportunities for decentralized finance (DeFi) will emerge in the near future, with the majority of all centralized crypto services, particularly credit/debt services, ceasing to exist as DeFi opens up massive opportunities for development.
Could faster Web3 integration salvage the market?
In light of recent events, many people have lost a significant amount of money just because one company jolted the cryptocurrency market. This is where Web3 enters the picture, with its key selling point being the decentralization of the business model. And because the cryptocurrency industry has become dominated by a few powerful individuals, the active integration of Web3 has the ability to shift this power structure back to consumers. Open standards and protocols may make a comeback. The purpose of actively integrating Web3 is to guarantee that control is spread widely through decentralized blockchains and smart contracts without authorization, rather than concentrated on huge platforms and aggregators.
Governance, which is one of the most difficult components of Web3, should take place in the community rather than behind closed doors. With some incentive, revenue may be returned to authors and users to finance user acquisition and growth.
One of the fundamental cornerstones of communities and essential to their effective growth and vitality is the development of trust between members. Member and community trust is not a static idea; it develops over time as a consequence of collected experiences and interactions. To maintain member and community trust, it is necessary to continuously demonstrate one’s ideals and traits rather than simply proclaiming them. To optimize for genuine and meaningful interactions, Web3 communities and DAOs rely on “trustless” concepts. The blockchain’s smart contracts include the underlying mechanisms that direct community governance and member reputation.
In practice, what does this mean?
In essence, this might imply a paradigm shift in the economic model of digital apps, with disintermediation playing a critical role. Data, functionality and value may no longer necessitate the use of intermediaries. Users and producers may take control and have incentives to create, test, build and expand with open-source apps rather than proprietary applications and cease losing assets to centralized platforms.
Other solutions to the problem
The failure of the FTX exchange, which resulted in a sequence of catastrophic events in the cryptocurrency market, severely eroded customers’ trust in the existence of centralized structures inside the sector.
With user confidence at an all-time low, non-storage storage solutions and the transition to completely decentralized platforms are becoming more important. As a result, there is a rising need among users for completely autonomous systems that can provide security, dependability and adherence to decentralization principles while providing the convenience of Web2. This led to the creation of companies like dappOS and Tenderly.
The teams at both those companies are intended to address this need by equating the accessibility and usability of decentralized apps with those of their mobile equivalents and serving as the first universal Web3 operating standard. dappOS facilitates the user verification process and the execution of actions in decentralized settings by providing a layer of interoperability between users and crypto infrastructures. In addition to that, it’s simple to navigate and the gas fees are really low. In November 2022, dappOS was chosen to join the fifth season of the Binance Labs Incubation Program – after all, it looks like CEXs want to be part of the game in the future especially considering that dappOS aims to compete with Metamask.
A new era of finance
While crypto consumers are quickly losing faith in centralized systems, this might herald the dawn of a new era of decentralized apps and finance, as well as the advancement of technology targeted at eventual integration into the real world.
Improving application usability and decentralization will allow crypto investors and users to recover interest and trust. And market participants like MetaMask, Tenderly and dappOS are hoping to be the solution to the crypto industry’s challenges.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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