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While decentralized exchanges are being heavily pushed in the cryptocurrency industry, it will take a while before they can really take over centralized exchanges.
In many ways, cryptocurrency exchanges act as the backbone of the industry. They are the medium through which an overwhelming majority of cryptocurrency is traded, they have been an avenue for the introduction of institutional support into the industry. The fortunes of cryptocurrency exchanges also reflect the current state of the industry in terms of token supply, token price, and demand for tokens.
However, the last few years have seen a shift in the setup of many cryptocurrency exchanges. At the beginning of the industry, the most common types of exchanges were strictly centralized exchanges. A centralized exchange is one in which the funds to be exchanged are held in trust by the exchange until the trade is completed. These are kept in official exchange wallets and are dispersed according to confirmed transactions. However, the use of decentralized exchanges came with several downsides.
The most common issue was that of hacks. In the last few years, several high profile cryptocurrency exchanges suffered hacks, including Binance and KuCoin. The customer funds which were stored in company wallets were stolen and most of the funds were never recovered. Then there was the QuadrigaCX saga in 2019 in which millions of dollars which belonged to users of the exchange was permanently lost after their CEO, who was the sole holder of the keys to the cold wallet, died unexpectedly.
These incidents revealed a significant flaw in the current exchange system; if a single entity had custody of users’ information and funds, an attack on them might prove catastrophic if successful. This is partially where the demand for decentralized exchanges came from.
Rise of Decentralized Exchanges
Decentralized exchanges, as the name would imply, are exchanges that do not operate as a central entity. Customer funds are not held pending transactions but instead, customers are connected on a peer-to-peer basis. The privacy of users is ensured and funds are transferred via the use of smart contracts. This has appealed to consumers who wish to maintain their privacy or are distrustful of centralized entities.
This resulted in many large exchanges such as Binance offering decentralized versions of their exchanges and more organic decentralized exchanges popping up. Many of the newer decentralized exchanges have also
Plutus, a rare crypto to fiat decentralized exchange with its own crypto card, recently announced plans to pursue a banking license, launch in Latin America, launch in Asia, and rapidly scale the business. They have also revealed their Pluton Liquidity Injection Programme (PLIP) which involves partnerships with five exchanges and several micro-sales.
Their native token PLU also went on sale recently to enthusiastic responses from the public. The first sale took place on their own internal platform, the PlutusDEX. PLU is being sold at $8 and the exchange has implemented several unique features that have made it incredibly successful, such as a 40% bonus – Whatever a user pledges for, they receive a 40% bonus in PLU on top, an extremely high bonus rate that you don’t see elsewhere.
However, due to increased demand, the sale was oversubscribed in just 48hrs and Plutus had to extend the sale and the cap to accommodate the demand. The sale has now ended (Oct 13), it was oversubscribed twice over in just 6 days.
The success of the sale stems down a few important and rare factors. There was a cancellation policy which means that participants could cancel their pledge if they changed their minds. Furthermore, there is a price-floor guarantee – the minimum rate of PLU on the PlutusDEX has been locked at $8 for 90 days meaning participants can sell PLU back at the same rate they purchased (limits apply).
They are also offering premium membership. This means that all participants will automatically get a 6-month free membership worth £/€9.99 per month.
Decentralized Exchanges into the Future
While decentralized exchanges are being heavily pushed in the cryptocurrency industry, it will take a while before they can realistically usurp centralized exchanges. First, centralized exchanges have had a head start for several years and as such, have been able to accrue a significant userbase. Furthermore, they offer a roster of products such as margin trading that decentralized exchanges do not offer yet, which gives them an advantage.
However, it is likely that the industry will innovate and when it does, we may very well see decentralized exchanges finally take center stage.
Having obtained a diploma in Intercultural Communication, Julia continued her studies taking a Master’s degree in Economics and Management. Becoming captured by innovative technologies, Julia turned passionate about exploring emerging techs believing in their ability to transform all spheres of our life.
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