The collapse of the FTX exchange caused a chain reaction throughout the crypto industry, as many projects are interconnected. And the consequences of this bankruptcy will be reflected in cryptocurrencies for a long time. This means that centralized exchanges may soon face increased control from regulatory authorities.
Cryptocurrencies have appeared not long ago, the digital asset industry is very young, in many jurisdictions there is no regulation of cryptocurrencies at all. Investors and traders are forced to act at their own risk.
It is not surprising that the digital market is often called the Wild West of the financial world. And this means that in the absence of regulation and strict regulatory control, bankruptcy like FTX will continue.
On November 8, FTX, the second largest cryptocurrency exchange in the world, faced a liquidity crisis due to the fact that the firm facilitated shady transactions with the associated company Alameda Research. A huge scandal has broken out, the consequences of which the crypto industry will face for a long time.
2022 continues to be difficult for the global economy. Along with the entire financial sector, the crypto industry is also experiencing a crisis. It has suffered from a series of bankruptcies that have had a negative impact on financial prospects and investor confidence in this developing industry.
Since May, many well-known crypto projects, such as Celsius, Three Arrows Capital, Voyager, Vauld and Terra, have collapsed within a few months. And this trend continues.
The fall of the FTX has been devastating for the industry, as evidenced by the fact that after the bankruptcy of the company, the prices of the main cryptocurrencies have fallen significantly, without showing any signs of recovery so far.
The question of what awaits centralized cryptocurrency exchanges (CEXs) in the future has become relevant. How are they protected from the negative effects of the economy on the crypto industry? Will the remaining exchanges be able to survive the crisis?
CEX is now in an extremely difficult situation, working in conditions of low incomes and expectations of stricter regulation.
The confidence of investors and traders in centralized intermediaries such as cryptocurrency exchanges continues to fall steadily.
At the same time, there is a significant surge in institutional interest in decentralized exchange trading (DEX). Investors are changing their priorities. The growth in the number of DEX users continues to rise.
The crisis is a very difficult time for centralized exchanges. Not only is there competition among centralized exchanges, decentralized platforms are also coming to the fore, occupying an increasing market share.
In such a situation, ultimately, according to experts, no more than 10 centralized exchanges with high competitiveness will remain in the industry. Only the strongest with the greatest liquidity and the number of traders will survive.
The collapse of FTX will force exchanges to become more professional and transparent in their activities in order to maintain the trust of their users, or leave the market forever.
And this means that new bankruptcies of exchanges are waiting for us ahead. A lot will depend on how long the crisis will last and how quickly the existing exchanges will be able to adapt to the current economic realities.
Can DEXs fill the void
In this situation, the question arises, if now all centralized exchanges are experiencing a crisis, will DEX be able to take their place and provide its customers with more favorable and secure conditions. than CEX?
Already, large crypto exchanges are feeling the heat of competition from the DeFi protocols, which are actively developing. However, DeFi also has security issues.
DeFi protocols continue to be hacked, and people lose their funds. In addition, DeFi still has problems with liquidity.
Despite the unresolved problems, the role of DeFi continues to strengthen and large bankruptcies of centralized exchanges only accelerate the development of decentralized finance.
Many large CEX companies are currently investing in DeFi versions of their CeFi products or are exploring the possibility of creating such products.
At the same time, it should be taken into account that DEX does not stand still. In the near future, new features and products for DeFi will appear.
At the same time, at the moment, most DeFi protocols are still inconvenient and difficult for retail traders, which does not contribute to their mass use.
DeFi users should understand the principles of work of metamask and other cryptocurrency wallets extensions.
Many of them have difficulties entering fiat/cryptocurrency data. At the moment, CEX is much simpler and clearer to use.
Many experts recognize the advantages and disadvantages of centralized and decentralized exchanges.
This leads to the fact that there is more and more talk that it would be wise to combine DeFi and CeFi into CeDeFi, where customers will receive not only the convenience and ease of use of CeFi, but also the transparency of DeFi. This will be a new stage in the development of the crypto industry.
The recent bankruptcy of FTX was a harsh reminder that people should refrain from storing their money on non-transparent exchanges.
Neither the existing legislation nor the requirements of regulators are yet able to protect the rights of investors in cases of bankruptcy of exchanges. People continue to lose their assets.
Therefore, not trusting intermediary exchanges, users are increasingly paying attention to independent storage of funds in decentralized wallets with a private key or cold wallets.
At the same time, the collapse of FTX became a reminder to regulators that not everything is so good in the regulation of cryptocurrencies and people continue to lose their money.
Even the largest exchanges are not insured against bankruptcy, not to mention ordinary investors and traders.
There is no doubt that cryptocurrency is the future development of money. Blockchain-based technologies contribute to the monetary system and change the financial system, just as the Internet has changed the telecommunications industry.
But for development, it is necessary that there be a certain level of institutional trust in the crypto industry.