Cryptocurrency has a bright future, but there are some factors that could hinder it. For instance, the derivatives market is a zero-sum game, which means that money itself isn’t valuable, but instead serves as a vehicle for value. This zero-sum structure creates an environment that is highly competitive and speculative, and focused on short-term profits instead of the value of the currency.
Adoption and Capital Injection Needed
In order for a cryptocurrency’s value to rise, it must be adopted by more people and businesses and have capital injected into it. The more adoption and inflow, the more stable the currency can become. Unfortunately, because of the value and potential of cryptocurrencies, users are gravitating towards centralized exchanges (CEX). This means the value of cryptocurrency is primarily driven by market sentiment and speculative trading, not the technological advances.
The allure of quick profits from crypto trading is hard to resist, and this leads to capital flowing into exchanges. This presents a dilemma: cryptocurrencies were designed to undermine centralized power structures, but the pursuit of profits has led users to the most reliable and efficient CEXs. These platforms have accumulated more wealth via fees and become more powerful.
Why Do We Need CEXs?
Centralized exchanges play a crucial role in the pursuit of a distributed ecosystem. They act as a bridge between traditional financial systems and the emerging world of cryptocurrency. By refining and improving their operations, as well as implementing a robust security infrastructure, CEXs facilitate a seamless transition to decentralized finance and its adoption.
CEXs offer a number of advantages, including the ability to foster market depth and provide liquidity. This creates a marketplace where traders can buy and sell digital assets, reducing volatility and helping to stabilize the crypto market. They also provide a great entry point for new crypto users, with intuitive interfaces and user-friendly trading tools.
CEXs are also important for risk management, customer service, and fiat on-ramps. It is our responsibility to strike a balance between the need for decentralization and a centralized exchange. This is crucial for achieving a future that is inclusive, decentralized, and sustainable.
Hao Yang has served as the head options at Bybit since 2021. He previously provided consultancy services to OKEx Options and was a quantitative analyst at PZEM modeling energy options and a trader with Optiver, focusing on index options and interest rates. He began his crypto journey by mining before developing the trading system for an exchange startup and holds an MSc degree in finance from Vrije Universiteit Amsterdam’s Duisenberg Honors Programme.
Ultimately, blockchain technology will establish a framework that is reliable for exchanging values, decentralizing control and power. We should embrace this revolutionary paradigm shift.
This article is meant to provide general information and is not intended as legal or financial advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
