In recent months, there has been a significant shift in the movement of crypto funds from centralized finance (CeFi) exchange platforms (CEX) to decentralized finance (DeFi) exchange platforms (DEX). This shift comes after several high-profile crashes involving major U.S. banks, including Silvergate, Silicon Valley Bank (SVB), and New York Signature Bank.
The banks in question were all U.S. government Federal Deposit Insurance Corporation (FDIC) members. They most likely drew lawmakers' attention due to the ongoing investigation of the infamous FTX multi-billion platform crash in November 2022, drawing the attention of the U.S. Senate and a following legal crackdown on the U.S.-based crypto-friendly banking participants.
The recent crackdowns on crypto-friendly banks in the U.S. caused significant disruptions in the Web3 and traditional banking systems and raised concerns among crypto investors about the safety and security of their funds. As a result, many crypto investors have been looking for alternative options to store and manage their cryptocurrency assets. The above trend is saturated by Lim Yu Qian's recent study at CoinGecko of the crypto funding by sector shift from CeFi shrinking by 73% to DeFi rising by 190%.
Why is DEX better than CEX?
One of the primary reasons for the shift towards DeFi's decentralized exchange (DEX) platforms is the increased security and transparency offered by decentralized platforms. In a decentralized system, there is no single point of failure, and the risk of hacks and security breaches is significantly reduced.
Moreover, DeFi platforms are built on blockchain technology, providing high transparency and immutability. Transactions on the blockchain are recorded in a public ledger that is accessible to anyone, making it easier to track and verify transactions.
Another significant advantage of DeFi is investors' increased control over their funds. In a CeFi system, investors must rely on CEX crypto exchange companies, banks, and other intermediaries to manage their funds, which can be costly and time-consuming. In contrast, DeFi platforms allow investors to retain complete control over their assets and often participate directly in platform decision-making.
There are also significant cost savings associated with using DeFi platforms. Because these platforms are decentralized, no intermediaries are involved in transactions, which means lower fees and faster transaction times.
As more investors move towards DeFi, the industry is experiencing rapid growth and innovation. New DeFi platforms are emerging regularly, offering new features and capabilities unavailable in traditional financial systems.
Despite the advantages of DeFi, there are still some risks involved. Because the industry is relatively new and unregulated, there is a risk of scams and fraud. Investors must be cautious when investing in decentralized exchange (DEX) platforms and conduct due diligence before committing funds.
Final Thoughts
In conclusion, the recent crashes involving major crypto-friendly banks in the U.S. have led to a significant shift in the movement of crypto funds from CeFi to DeFi. The increased security, transparency, control, and cost savings offered by DeFi platforms drive this trend. While risks are still involved, the rapid growth and innovation in the DeFi industry are promising, and we can expect to see the continued growth of the decentralized finance segment in the years to come.
