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JPMorgan calls for continued dominance of centralized crypto exchanges after FTX


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Despite the recent boom of centralized cryptocurrency exchange (CEX) FTX, JPMorgan strategists led by Nikolaos Panigirtzoglou believe such exchanges will continue to dominate the crypto ecosystem. wider market as decentralized trading platforms face a number of hurdles.

First of all, decentralized finance (DeFi) protocols rely heavily on CEX to function properly, and “it will likely take a long time until the heart of price discovery in the money markets electronics move from centralized exchanges to DeFi,” the team wrote in a recent note to clients. They added that DEXs are not suitable for large sum investors due to slower transaction speeds or “their trading strategies and order sizes can be tracked on the blockchain.”

For (on-chain) DEXs, since everything can be tracked on the blockchain, it is nearly impossible to trade coins without attracting attention. That’s exactly what FTX (off-chain CEX) is supposed to do when it comes to lending half of the customer’s money to its sister company Alameda Research in an effort to fund risky bets.

While overall trading activity on DEXs appears to have increased in recent weeks, that early change is more likely a function of the latter’s leverage, the team explains. the collapse of FTX. Bernstein highlighted this trend in a note last week, saying that the fall of FTX is placing cryptocurrency self-governanceallowing users to store their own tokens instead of relying on off-chain exchanges, is “in vogue again”.

Furthermore, DEX trading volume last month hit its highest level since May, rising to $103.84 billion in November from $57.6 billion in October, data from DeFiLlama shows, signaling a decline in confidence in CEX. Digital Galaxy (OTCPK:BRPHF) founder and CEO Mike Novogratz said the FTX mess is a “discharge yourself” to believe in the cryptocurrency industry and trust the system.

But JPMorgan is still taking a contrarian view, noting that DEXs don’t have a limit order/stop loss function, smart contract risks (hacks and hacks), their excessive collateral needs, and compounding. assets in the liquidity pool.

“The risk/reward trade-off [is] more difficult to evaluate in DeFi due to the use of different tokens on borrowed or loaned/mortgaged assets posted/received interest payments and because there is generally no limit order/stop loss function ,” the note reads.

Bitcoin (BTC-USD), the world’s largest digital token by market capitalization, dip much as 7.3% in the days after FTX filed for bankruptcy on November 11, though nearly all of those losses have since been written off. However, in general, the token still does not work 70% from November 2021 highs. See why Seeking Alpha contributor Vincent Ventures thinks “FTX pain is bitcoin’s gain.”

SA contributor Craig Pirrong assessed the DeFi-CeFi debate, saying that the demise of FTX does not mean that centralization of cryptocurrency trading is fundamentally flawed, but instead see “worst way” to pursue centralization.

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