Resisting a Closed Crypto Ecosystem

With all disruptive movements there is a moment when the disruptors become the very system they thought they had disrupted.

I have already written about the comments of Vitalik Buterin the co-founder of Ethereum on Centralized Exchanges (CEXs) and his preference for Decentralized Exchanges (DEXs) so I won’t rehash his full frontal assault on the problems with CEXs. These problems are known to many. That being said, I want to tackle the idea that DEXs are somehow a sort of pristine and open set of exchanges that are here to help us build a more “democratic” financial system.

What we have been witnessing in the crypto markets is very clearly a very wild expansion. True, cryptos are down considerably from where there were in November of 2017, but if you measure one year ago, they are still very high in comparison. Despite this, most investment capital remains on the sidelines waiting to jump in.

Why is this?

The traditional financial world still views cryptocurrency exchanges as chaotic and insecure platforms. Ultimately, when referring to DEXs there is truth to their claims. Remember DEXs have little KYC or AML protocols and far less security. While there are hacks on both CEX and DEX platforms, there is no question DEXs have a whole host of fraudulent issues unless of course one knows how to use them. That’s right, guys like Buterin and those who made their wealth understand the system. After all they are the disruptors. Their drive to disrupt traditional financials has given them the ability to keep things pretty much controlled to their liking.

This is ultimately why they are fighting very hard against regulatory oversight and any form of centralized control. It is not because they fear the boogieman of governing agencies, but rather they fear an opening up of the very system they helped build.

The irony in all of this, is that those pushing for unregulated, decentralized exchanges are actually pushing for a system that is so unpredictable that only they can navigate it. This results in a de facto closed system. In a strange twist, those pushing for regulations and licensed exchanges are the ones clamoring for opening up the crypto revolution to the broader world. Keep in mind, most of us pushing for more regulations are backing a hybrid model. This model, that sees the protection of centralized oversight, with the anonymity and fluidity of a DEX, Buterin never even entertains.

Think about it. How many people would entertain the need to go and buy a high priced ledger to protect their tokens in cold storage? Most people, even seasoned retail investors wouldn’t jump into a system that required that.

Expanding the system and creating a real even playing field means some sort of oversight. Unless of course the interest of the disruptors is no longer about disruption, but their own control.