Decentralized exchanges promise a world in which cryptocurrency can be traded without a centralized middlemen. Nevertheless, the majority of cryptocurrency currently trades on centralized exchanges that have amassed large network effects, offer large amounts of liquidity and have an easy-to-follow user experience. Recently, exchanges Binance and Kyber Network released news of progress toward the future of decentralized exchanges: Binance announced the launch of a decentralized exchange, and Kyber Network made their decentralized exchange beta available to the general public.
Decentralized vs. Centralized Exchanges
On a traditional, centralized exchange, users place their trust in a single party to store their funds, execute trades and protect their confidential information. Centralized exchanges are for-profit companies that make money from fees associated with each trade. Because these exchanges store cryptocurrency on behalf of their users, they are lucrative targets for hackers. Since the beginning of 2018, hackers have stolen more than $700 million worth of cryptocurrency. Centralized exchanges have user-friendly interfaces and are utilized by the majority of cryptocurrency traders because their centralized order books offer advanced trading features and large amounts of liquidity.
Decentralized exchanges, on the other hand, do not rely on a third party to conduct trades or store cryptocurrency. Instead, they use blockchain technology to enable peer-peer trading without an additional third party. Because decentralized exchanges don’t have to be for-profit entities, they can provide fee-less or close-to-free cryptocurrency trading much cheaper than the fees associated with centralized servers. However, current decentralized exchanges are generally difficult to use for common cryptocurrency traders and also lack advanced trading functionality and liquidity.
Kyber Network Beta Opens to the Public
In a recent step forward for decentralized exchanges, Kyber Network — a decentralized cryptocurrency exchange which conducted a 200,000 ETH crowdsale in 2017 — announced on Monday, March 19, 2018, that their mainnet beta is open to the public. Previously, the company hosted a closed beta launch for around 10,000 “whitelisted” users, with a daily volume of circa $60,000.
In an interview with Bitcoin Magazine, Kyber Network CEO Loi Luu explained his vision for the public beta: “Our goal is to drive volume and stress test the platform. We will be tracking the number of users, volume and number of trades. We expect a daily volume of up to $1 million USD after a few weeks in public beta.”
As the Kyber Network continues to expand their platform, they plan to utilize a “reserve managers” mechanism to overcome the lack of liquidity inherent to many decentralized exchanges.
The “reserve managers” program incentivizes users to monetize their idle assets (or unused cryptocurrency that is in their accounts) and fill trade requests. As reserve managers fill orders with their unused cryptocurrency, they can earn a profit from the spreads they determine on trades.
As the Kyber Network user base and network effect grows in the public beta, the decentralized exchange hopes that reserve managers will directly benefit from trading volumes and will be incentivized to provide their idle assets to the network.
Binance Decentralized Exchange
Binance, a centralized exchange that boasts more users than the population of Hong Kong (7.9 million), recently announced plans to develop Binance Chain, a decentralized exchange. Users will use Binance’s native BNB token to power the decentralized exchange. Binance hopes to develop a low-latency, high-throughput exchange that makes it easy for users to trade and create new tokens. Binance has not confirmed a release date for their decentralized exchange.
Binance is hosting a community-driven coding competition, Dexathon, to jumpstart development efforts. The company has organized a prize pool equivalent of $1 million BNB tokens to incentivize their community to help develop the blockchain required for a decentralized exchange. The company is also providing special grants of $10,000 to qualifying university teams looking to develop the Binance Chain.