Even if not strictly correct, major centralized exchanges (CEXs) such as Binance, Bybit and Coinbase are shrewdly positioning to operate in the decentralized finance (DeFi) frenzy. These CEXs are building out on-chain and off-chain solutions to bring DeFi trading into their core apps. This transition is meant to give their users faster access to the most popular tokens and increase their platform’s defensibility. As noted above, each exchange takes an individual approach, with differences ranging from underlying architecture to asset custody models to the user experience.
CEXs' Incursion into DeFi: Addressing Liquidity and User Retention
CEXs are irresistibly attracted to DeFi, not least because they all notoriously lack the ability to quickly list the tokens that the market wants most. This restriction can further create the impetus for user churn as traders look to take their business somewhere else. CEXs have been incorporating DeFi to make the experience smoother and more seamless. Now, users can tap into a much wider universe of assets and trading opportunities right from their favorite platforms. This strategic move serves two primary goals: preventing user churn and strengthening the platform's defensibility in a competitive market.
Coinbase, to take a recent example, unveiled initiatives to bring DeFi trading right into its primary app — all the way back at the 2025 Crypto Apex. This integration will allow Coinbase users to access DeFi protocols and tokens without leaving the familiar Coinbase environment. On June 14, Bybit deployed ByReal, an on-chain expansion of its exchange-centric tech stack. This development is another example of the trend of centralized exchanges (CEXs) building solutions on-chain. Binance Alpha It’s a different approach with Binance Alpha, which is more of a retail-oriented product to serve a wider audience.
The integration of DeFi into CEXs allows these platforms to track, monetize, and recycle user activity within their ecosystems, rather than allowing it to flow to third-party protocols. This increased ability to surveil user activity enables CEXs to increase revenue in more ways. It creates a dramatic enhancement to the user experience. CEXs reactively attempt to gain a piece of the expanding DeFi pie. They accomplish this by bridging the best of centralized and decentralized finance.
Divergent Strategies: Coinbase, Bybit, and Binance
Coinbase has cultivated a robust dual-track business model focused on retail and institutional users. For retail users, Coinbase aims to provide smooth, integrated on-chain access to DeFi protocols through its main application and standalone Coinbase Wallet. Infrastructure for institutional investors For institutional users, Coinbase provides a regulated, high-security liquidity venue tailored to the most stringent requirements of institutional investors. Coinbase is unique in its Verified Pools. These pools provide users the opportunity to tap into rigorous and safe DeFi liquidity alternatives.
Today, Bybit’s strategy is focused on ByReal, an on-chain extension of its exchange infrastructure. ByReal allows Bybit users to trade and farm DeFi tokens and protocols without leaving their Bybit accounts. This integration allows Bybit to offer a wider range of trading opportunities while maintaining control over user assets and data. Bybit’s emphasis on on-chain integration further illustrates its commitment to offering users a unified and transparent DeFi experience.
Binance Alpha is the most retail-oriented product of the three largest exchanges. Binance Alpha aims to provide a user-friendly interface for accessing DeFi protocols and tokens, making it accessible to a wider audience. Binance's approach focuses on simplifying the DeFi experience and providing users with the tools and resources they need to navigate the decentralized finance landscape.
Impact on Institutional Adoption and Capital Inflows
CEXs are not only poised to lead the adoption of decentralized finance by an enormous margin. Conservative institutional players such as pension funds and insurance companies will likely remain on the sidelines for at least the next several years. These institutions typically only allocate a very limited percentage of their overall portfolio to alt investments. At the same time, DeFi is still a very new and highly speculative asset class. Capital inflows into DeFi will be more sober and organic. Look for a trial balloon in the hundreds of millions, rather than a huge wave of institutional money.
Here’s why institutional investors are right to proceed with caution. Regulatory uncertainty, security concerns, and the complexity of DeFi protocols all factor heavily into their considerations. Most institutions are understandably waiting for more regulatory clarity and more security coverage before deploying substantial capital to DeFi. The opacity of DeFi protocols adds an additional hurdle for institutions. For those who don’t have the right expertise, it can be difficult to understand the evolving decentralized finance landscape.
Even in the face of these challenges, the long-term outlook for institutional adoption of DeFi is very promising. Picture this—the DeFi market is undergoing record-setting growth. Once regulatory frameworks start providing some clarity, we’re bound to see more institutions jump into the decentralized finance space. As centralized exchanges (CEXs) begin their foray into the DeFi space, they will most certainly accelerate this trend. They provide institutional investors a reassuring and well-known avenue to capitalizing on DeFi protocols and associated tokens.
