The DeFi Trend Continues As Adoption Expands
In 2021, using DEXs rather than centralized exchanges became the default choice for traders and crypto enthusiasts. Due to countless hacks, users felt safer not entrusting their coins to a third party. This trend has, in many ways, continued and is the preferred choice of transacting in 2022. Although custody is temporarily lost, it is automatically returned to the user’s wallet within seconds.
This obviously significantly limits the potential risks. Centralized exchanges, on the other hand, hold coins indefinitely, or at least until the user actually withdraws them. This places coins at risk for extended periods, unlike coins traded on DEXs. A momentary transitional period cannot be equated with the long-term loss of private keys. Regarding custody concerns, DEXs are the superior option.
Centralized exchanges are, however, still preferred by traders, as execution is fast and liquidity is much more transparent than on DEXs. Ideally, DEXs are preferred for simple asset swaps, buying, and selling. Another drawcard of centralized exchanges is the passive income opportunities they offer. To find out more about the differences between CEXs and DEXs, visit this article.
The Original Vision Behind Decentralized Exchanges
DeFi and Web3 share the same fundamental operating principles. One may even consider them synonymous. Just as in Web3 protocols, a DeFi participant connects with a wallet signature and not a standard account, email, and password procedure. The entire goal of Web3 and DEXs is to remove barriers and limitations, while simultaneously providing self-custody of assets.
In a perfect Web3 world, users are not restricted when moving between decentralized applications, such as decentralized exchanges (DEXs) and SoFi platforms like Hive. However, this ideal is being challenged, and for obvious reasons. As I have mentioned, considering a system allowed to exist without regulation is a bit naive. It was destined to arrive.
DEXs were created with the goal of privacy and simplicity. The idea of ease of use is still relevant. However, privacy is slowly being challenged as more and more DEXs, such as PancakeSwap and Uniswap, yield to regulatory pressure. This is expected to continue and signals a shift, rather than several isolated events.
How Censorship Is Entering The Cryptocurrency Industry
Another concern in the crypto community is losing access to funds for any reason, and in other words, being censored financially and ultimately losing access to one’s own wealth. This has always been a very real threat for CEXs, but now a similar one is on the horizon for DEXs. Something I am sure many were perhaps not expecting, or at least not so soon in this technology’s journey.
Apart from interaction on the blockchain between addresses, any third party can become a gatekeeper. This means that any service can, in essence, limit and marginalize any address they wish to, or as instructed to. This poses a threat to the once liberal world of decentralized exchanges. Governments can issue instructions to block certain WEB3 entities, such as DEXs.
PancakeSwap Makes A Bold Statement
Recently, PancakeSwap announced that it will begin geoblocking users from Iran and nine other jurisdictions. The concern here is that this is now becoming standard practice, which raises concerns about future issues. Interestingly, at the same time Canada froze bank accounts, Jesse Powell warned against holding assets on centralized exchanges, and now even decentralized exchanges are a concern.
When you consider the sudden acceleration in the development and implementation of regulatory frameworks, it becomes even clearer that certain locations around the world will become increasingly popular. Crypto-friendly countries with adequate services and infrastructure are likely to thrive, provided they maintain a positive and adoption-friendly stance.
Necessity Is the Mother Of Invention In Crypto And Web3
People are already being drawn to certain locations because of crypto-friendly regulations and tax policies. The need for safe countries that simultaneously embrace crypto can spark creativity and advancement. Once something becomes vital, things begin to move fast. Locations or countries that will most likely flourish due to an inflow of crypto enthusiasts will possess two very important criteria, in my opinion.
Firstly, they will have reasonable and tolerable regulations in place that do not stifle activity. Secondly, they will be countries not viewed negatively by the US and the powers that be. Consider whether you can trade based on where you live. Miners in China experienced a similar situation when their government banned all crypto mining. Find out more about this event here.
However, once again, necessity proved only to create a more favorable outcome. Bitcoin mining is much more decentralized, at least geographically, and China has now played its best hand. There is nothing worse than an outright ban that includes the mining and trading of cryptocurrencies. In other words, China has exhausted its measures to resist the crypto industry.
A Possible Response To Regulation From Web3 And DeFi
Censoring decentralized services will hopefully also prompt a response that ultimately leads to a positive outcome. It is always difficult to envision something before it appears. Another factor to consider is advancement itself within the crypto world. DEXs are, in essence, a step up from centralized exchanges. Who’s to say that there will not be a further advancement from here?
The foundational layers are still being built, and progress is moving quite quickly. How the crypto community and coders will respond to the current rise in financial censorship is the trillion-dollar question. At the end of the day, people go where they are treated best. Countries that begin to face restrictions on crypto services may indeed see an outflow of residents to other jurisdictions.
Conclusion
It’s quite clear that financial censorship has suddenly peaked worldwide, and it’s especially evident in Canada of late. How this new “trend” plays out remains to be seen. Crypto is by no means excluded, and centralized, even decentralized exchanges, are coming under intensifying pressure. Holding your own crypto becomes increasingly vital with each passing day. As regulatory clarity slowly takes shape, certain jurisdictions are being viewed from a whole new perspective.