Centralized marketplaces will always have their place. Although they’re expensive, centralized exchanges like Binance or Coinbase have a central authority paying engineers, developers, and designers to create a seamless experience. If you want simplicity, these will always have utility.

And centralized exchanges are better able to control and predict liquidity. Decentralized exchanges rely on people staking their crypto assets to provide liquidity, and they can pull them out at any time. Great for the user, but it’s not so great for forecasting and allocating financial resources.

Many people also want to use crypto like cash. Crypto.com has a card, but that has financial limitations – you must maintain a minimum balance to get it. With a decentralized exchange, you can trade directly from your custodial wallet with no need for KYC/AML and all the financial tracking implemented by the government.

This is all assuming you live in a place where you’re allowed to use crypto exchanges. In some countries, or even states like New York, people have a hard time using crypto because of strict regulations. They may be excluded from a particular exchange or token because a company didn’t file for an expensive BitLicense.

Decentralized exchanges give these people access to trade their crypto assets as they please. And the anonymity of these p2p trades is something everybody should cherish. I don’t walk around with my bank account number, balance, and transaction history tattooed on my forehead for a plethora of good reasons. In the same way, the move to attach your .eth name to your wallet address to make you even easier to trace raises some privacy concerns.

Because of these hurdles, decentralized exchanges will always have a market. Although I don’t know that they’ll ever become commonplace until society as a whole is more crypto-savvy, and I don’t think we’re there just yet. For example, most people won’t use a VPN or proxy to protect themselves online unless it’s done automatically for them. The internet has been popular for over 20 years, and the average person still struggles with basic security measures online.

Can Decentralized Exchanges Go Mainstream?

The biggest challenge to the mainstream isn’t so much functionality as it is pricing. Even when removing the centralized company like Coinbase or Crypto.com charging service fees, you still have to contend with gas fees. We’re only a month in, and I’ve already seen Ethereum’s price cut in half while gas fees skyrocketed over $100. Can you imagine your bank or broker charging you a $100 transaction fee for a $10 order?

Sonic is a decentralized exchange (DEX) and liquidity provider built end-to-end on the Internet Computer worth paying attention to.Sonic is pioneering a suite of decentralized finance (DeFi) services, complete with liquidity pools and an automatic market maker (AMM) — representing the dawn of DeFi on the rapidly expanding Internet Computer network. 

The Internet Computer uses a “reverse gas” model that’s quite different than what we’re used to with Ethereum. Developers supply the funds needed to run the applications/contracts that use their gas. No longer do users need to pay to mint an NFT or perform a swap on a DEX.

Of course, developer fees remain virtually non-existent as well. To give an example, Entrepot, an NFT marketplace built on the Internet Computer, transacted millions in volume over the past three months — the total gas cost to developers was less than $20 in fees. You couldn’t even perform one transaction on Ethereum for that price.

Sonic enables Internet Computer users to swap tokens, earn fees as a liquidity provider, and leverage an AMM with a simple interface that’s great for both newbies and power users.

DEX Regulation Incoming?

In typical Defi applications such as Uniswap or Sushiswap, the back-end smart contract is the only thing that typically resides on the blockchain while the front-end and middleware are hosted on a centralized service, making them susceptible to censorship and attacks.

This also means that many of these decentralized exchanges can easily be shut down by a government or regulatory agency. Government agencies in the U.S., Hong Kong, and elsewhere are looking at regulatory frameworks as we speak. The biggest hurdle is determining which regulatory agency has jurisdiction, as DEXes often operate in multiple jurisdictions. 

Because they’re non-custodial transactions on platforms often developed anonymously, it’s understandable why governments are so interested in the sector. Even if you can identify the developers, a DEX can run without them. This makes them difficult to regulate, but high-profile hacks like SushiSwap and PancakeBunny experienced last year will certainly draw regulatory ire much like what happened to ICOs in the 2010s. The SEC is investigating Uniswap Labs, and that’s likely to drive the DEX regulatory talk stateside.

It’s unclear exactly what the government can do though – China’s blanket ban on all crypto assets drove the UNI token’s price up by 20 percent, showing that even the Great Firewall can’t stop this peer-to-peer trading. Everybody will do their best to comply with regulations, but the idea that a government can shut down a DEX is already being tested. So far, the DEXes are winning.