DeFi’s Good, Bad and Ugly

DeFi’s Good, Bad and Ugly

(Kelvin Zyteng/Unsplash)

Kapil Rathi is CEO of CrossTower, a crypto exchange and structured products provider. He has held senior leadership roles at Cboe, Bats, ISE and the New York Stock Exchange.

Everyone has fallen in love with decentralized finance (DeFi). We’re all giddy about it. One subset of DeFi is the ever so popular decentralized exchange (DEX). DEXs, such as 0x, Uniswap and Kyber, have tried to compete with centralized exchanges by offering a peer-to-peer trading model, which theoretically requires no intermediaries and no deposits on a centralized exchange.  

There’s one big problem: liquidity or, more specifically, a lack of liquidity. In the past, there were buyers that couldn’t find sellers and sellers that couldn’t find buyers. With a lack of liquidity, the spreads on these platforms weren’t competitive to centralized exchanges. This is precisely why centralized exchanges played a critical role bringing market makers and traders to a central limit order book.

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