Even more interestingly, centralized exchanges (CEXs) are embarking on decentralized finance (DeFi). They are, instead, adopting a third, hybrid CeDeFi model that marries the best of both centralized and decentralized approaches. That strategic shift is driven by a handful of key factors. Specifically, we seek early access to tokens that will be in demand, deter churn among our user base, and increase the platform’s defensibility. Industry players such as Bybit, Coinbase, and Binance are adopting new approaches to bring DeFi features under their wings. This change, perhaps more than any other, indicates a remarkable maturation of the crypto space. Centralized exchanges are tired of sitting on the sidelines. Like any other business entity out there, they are actively looking to compete in and make a mark within the broader DeFi ecosystem.
The Allure of DeFi for Centralized Exchanges
CEXs are extremely eager to join the DeFi space. They are interested in getting priority access to direct listings and the most popular tokens. With centralized exchanges, in addition to compliance issues, there are technical requirements for integrating new and trending tokens, leading to a longer listing timeline. This added delay annoys users. Traders are clamoring to capitalize on new opportunities in the exciting DeFi market, where a new token seems to launch every minute. This would allow CEXs to leverage DeFi to identify and buy promising tokens before they would otherwise become available. This lets them give their customers faster and more cost-effective access to these assets.
Centralized exchanges are further incentivized by the desire to avoid user churn. The DeFi ecosystem is full of exciting investment opportunities. Because crypto users can yield farm, stake and provide liquidity—three extremely popular and lucrative attractions in the crypto space—these alternatives seem like a no-brainer. If the centralized exchanges (CEXs) can’t provide these benefits, users will be forcibly migrated to decentralized finance (DeFi). This relatively small migration would greatly impact the CEXs’ trading volume and revenue. CEXs can hold on to their existing user base by backfilling DeFi capabilities. This innovation will further open the doors to new users searching for centralized and decentralized services.
Additionally, CEXs are looking to improve their platform’s defensibility by moving into the DeFi space. The competitive landscape of cryptocurrency exchanges is incredibly intense, with new platforms entering the market every day and competing for users. By offering a comprehensive suite of services that includes both centralized and decentralized options, CEXs can differentiate themselves from competitors and build a more resilient business model. This diversification makes for a much richer and vibrant user base. It further reduces the dependency and risk of being on just traditional centralized exchange services.
Bybit's On-Chain Extension: ByReal
With its DeFi debut, Bybit has actually jumped big into the decentralized finance territory. On June 14, they launched ByReal, an on-chain extension of their exchange infrastructure. ByReal is particularly interested in bridging the gap between Bybit’s centralized services and the decentralized world. It gives users of both platforms a frictionless and convenient experience. Through this initiative, Bybit users will be able to directly use DeFi protocols and access DeFi assets from their accounts. First, it makes it much easier for newcomers to start engaging with the DeFi ecosystem.
As an on-chain extension, ByReal uses blockchain technology to offer users greater transparency, security, and efficiency. Explore and use decentralized applications (dApps) and smart contracts directly on Bybit to experience the future of Web 3.0. This new feature makes it much easier and safer to avoid the complexity of multiple wallets and accounts. ByReal represents a key step for Bybit to bring DeFi into the core of its offerings. This seamless integration significantly enhances its value proposition, attracting more users seeking centralized and decentralized financial services under one roof.
Bybit’s strategy with ByReal is indicative of an emerging trend among centralized exchanges (CEXs). To reach more customers and build out their product offerings, they’re turning more and more to decentralized finance (DeFi). User-friendly interface With Bybit, beginners and experienced traders alike can easily navigate the complicated world of DeFi protocols. This method enables beginners to decentralized finance effectively navigate challenges and begin their journey with confidence. This groundbreaking initiative serves as a testament to Bybit’s commitment to innovation. It’s a glimpse into their imagining of the future where traditional finance and crypto seamlessly collide.
Coinbase's Dual-Track DeFi Strategy
Coinbase is making an ambitious and complicated bet on the DeFi space. Combined, they’ve built a nuanced, yet comprehensive, dual-track strategy that caters to both the retail and institutional end-user. This strategy prioritizes equipping retail users with seamless, integrated access to on-chain services. Simultaneously, it offers a controlled, compliant and top-shelf secure liquidity venue for professional and institutional clients. Coinbase has made product decisions that cater to the specific needs of these two user segments. This strategy will allow them to tap a huge new wedge of the DeFi market.
Now Coinbase is bringing DeFi trading directly into its flagship application to retail users. This transition will bring greater comfort and familiarity to everyday users, empowering them to engage with the DeFi ecosystem at large. This integration will allow users to seamlessly trade DeFi tokens, participate in yield farming, and access other DeFi services without the need for separate wallets or accounts. By focusing on ease of use, Coinbase is looking to bring a wave of new retail users to its DeFi platforms.
Coinbase has recently added a cool new experience as part of their Delegated Pools feature set— Verified Pools. This unique tool provides a compliant and safe sandbox in which institutional investors can participate and interact with DeFi. Additionally, these pools are accompanied by greater security and compliance protocols. They incorporate strong risk management tools, which render them an attractive option for institutions looking to deploy capital into DeFi assets. Local regulations and processes cannot keep pace with the rapid growth of the blockchain ecosystem in so many jurisdictions. Its mission is to be the leading provider of DeFi services for this specific demographic.
Binance Alpha: A Retail-Oriented Product
Product wise it is the most retail oriented of the three large exchanges. It is aiming to provide the most approachable, easiest to use DeFi service to its vast number of users. As part of its ongoing efforts to democratize access to financial services, Binance matches donations. This method frees everyday people to help shape and drive the DeFi revolution. More importantly, Binance provides more advanced DeFi products and services that are specially catered to retail users. Specifically, their aim is to accelerate the global adoption of decentralized finance.
Binance Alpha offers a wide variety of DeFi products. You’ll find yield farming, staking, and liquidity providing all at your fingertips—made accessible through its simple and intuitive interface. These products are built with user-friendliness in mind, aiming to be intuitive and accessible to users who may be new to DeFi. Through informative articles and step-by-step guides, Binance allows customers to learn how to understand the complexities of DeFi and create smart investment strategies.
Similarly, Binance’s focus on attracting retail users is evident in its attempts to reduce the barrier of entry for consumers into DeFi. Binance makes DeFi more accessible to all. With low market entry thresholds and simplified trading systems, it’s accessible to everybody, regardless of income or level of computer literacy. This inclusive approach aligns with Binance's mission to bring financial freedom to the masses and empower individuals to take control of their financial futures.
The Role of Native Tokens
Centralized exchanges’ native tokens are poised to be the crucial connective tissue between on-chain and off-chain ecosystems. This will forge an interoperable ecosystem where centralized and decentralized finance exist together. These tokens serve as a bridge between the traditional services offered by CEXs and the innovative opportunities available in the DeFi space. By utilizing their inherent tokens, CEXs can further improve user experience, boost adoption, and open up new avenues for revenue.
Native tokens can be used structurally to incentivize users to undertake DeFi activities on-CEX. Users who stake their native tokens can receive boosted yields on their investments in DeFi. Alongside this, they unlock products and services within DeFi that are exclusive to their communities. This incentivization attracts users to actively hold and use the native token, boosting its value and overall utility within the ecosystem.
Native tokens can be dual-purpose to enable cross-platform transactions and interactions. CEXs can easily use the native token with both their CEX and DeFi platforms. This creates a seamless experience where users can quickly and securely transfer assets between the two environments. This interoperability makes an incredible difference in the user experience. More importantly, it empowers users to enjoy the best of both centralized and decentralized finance.
Preventing User Churn and Strengthening Defensibility
The centralized exchanges’ entrance into DeFi accomplishes both key anti-user-churn goals and focuses on deepening the platform’s defensibility. CEXs provide a robust ecosystem of offerings from both centralized and decentralized exchanges. This strategy not only gets them to keep the users they already have, but brings in new users who are eager to explore the greater DeFi ecosystem. This diversification further decreases the risk from relying completely on traditional centralized exchange services.
By giving users access to DeFi opportunities, CEXs can keep users from switching to specialized DeFi platforms. If yield farming, staking, or other DeFi activities sound appealing to you—now you can use these DeFi services right from your CEX account. This innovation simplifies it more than ever by cutting out the need for several platforms and juggling several wallets. This added convenience makes the platform more sticky, resulting in greater user loyalty and a lowered propensity for users to switch to competing platforms.
Additionally, by incorporating DeFi features, CEXs will be able to set themselves apart from their competitors and create a more robust business model. The ever-changing competitive landscape of cryptocurrency exchanges is such that new platforms are constantly emerging and attempting to disrupt the market share. CEXs can differentiate themselves from other players in the space by delivering a hybrid of both centralized and decentralized offerings. This approach allows them to appeal to a wider demographic of potential users.
