The Future of Cryptocurrency Exchanges: Why Decentralization is the Key to Success

The world of blockchain has come a long way in the past decade, rapidly moving through new technologies and pushing the bounds of what we thought possible. Yet, despite leaps and bounds of the technological side, we're still lagging behind when it comes to regulation and structures to finance. 

Existing in this grey area, many exchanges still use financial structures that are popular within centralized finance. We can see this with some of the world's leading cryptocurrency exchanges, which operate using centralized tactics of being a middle-man party and accepting money for trades.

This system, without the regulation that centralized finance has, creates a number of oversights that could be exploited. This was most famously seen with FTX, which imploded in 2022 after it came out that they were removing user funds from the platform. Without any regulation, there were no central bodies that could verify that the money was truly there, allowing Sam Bankman-Fried and associates to use the money for other endeavors.

As events like these shake the cryptocurrency community, we are reminded that decentralized finance should be exactly that – decentralized. Recently, exchanges like StormGain have made waves within the world of cryptocurrency for their new stance on user funds. They, acting in the spirit of being fully decentralized, have enacted a no-deposit policy to keep their community as safe and secure as can be.

Let's dive into the world of centralized exchanges, pointing out the stark shift that needs to occur for this industry to truly stabilize. 

Why Are Centralized Exchanges a Problem for Blockchain?

The core of blockchain as an entire industry is founded upon transparency, authenticity, and peer-to-peer operations. With that in mind, centralized exchanges that act as intermediaries and don't disclose where they hold user funds are the antithesis of everything this industry should stand for.

While some centralized DeFi exchanges have started to release proof of holdings, this isn't enough. As we've seen with FTX, the risk is simply too great for cryptocurrency investors to take on. Especially with the current climate of this industry, with leading cryptos falling from all-time highs, most projects are already standing on fairly thin ice. If there were to be another major event, it would shake the crypto community and push it into a territory that could potentially be impossible to recover from.

While centralized exchanges provide a level of familiarity for users, the fact that they hold user funds on-platform in platform-owner wallets is too much of a risk. Without the regulation in place to stop nefarious acts from occurring, investors will not flock back to centralized cryptocurrency exchanges any time soon.

What's more, centralized exchanges can lock users out of their accounts whenever they choose. This can happen at any moment, and is exactly why users couldn't drain their accounts on FTX when things started going awry. Simply put, centralized DeFi exchanges have too much power over user funds and accounts.

In our peer-to-peer system, we should demand better.

Moving Away from the Past and to a New Era of Cryptocurrency Exchanges

Some exchanges within the world of cryptocurrency are looking to change the current norm of using centralized DeFi exchanges in the hope of bringing about a more user-focused system for all. For example, StormGain is an exchange that has recently announced the release of StormGain DEX. Within this DEX, users are offered one extremely simple solution – they never have to deposit funds into the platform.

Instead of forcing users to connect a wallet and then enter funds into the platform for trading and exchange, StormGain DEX has taken a different strategy. Once a user connects their cold wallet – a wallet that they and only they have control and access to – they can invest on the platform without needing to transfer money to the middle-man. 

The total amount that the investor wants to put into a cryptocurrency leaves the wallet and is directly invested from the wallet itself. This approach allows users to retain complete control over all of their user funds. Instead of having to hope that their centralized DeFi platform will honor their funds and use them correctly, StormGain removes all uncertainty.

Exchanges like StormGain DEX are a fantastic example of exactly what the cryptocurrency community needs to strive for if we are to overcome our tumultuous history. At present, most of the community is afraid to invest, with routine investments decreasing in total value across the industry over the past year.

With events like FTX being all too common and potentially happening again with other centralized exchanges like Coinbase or Binance, people are too wary to get back into this market. If exchanges took a leaf from StormGain and followed their example, the industry could create a much safer platform to invest from.

When users feel confident that their money won't be scammed, stolen from them, or frozen in their accounts, then we will see the cryptocurrency market return to its previous bullish stance. 

Final Thoughts

The world of decentralized exchanges has now seen just how disastrous it can be to stray from the principles of being decentralized. With FTX in recent memory, both community members and exchange boards are looking for ways to distance themselves from centralized exchange practices.

StormGain is a shining example of taking the very core of decentralized finance and running with it. By offering their customers a way of never having to actually deposit capital on the platform, they allow clients to remain completely in control of their finances. This is a case study that all other exchanges should follow, with the community support that's now risen up for StormGain being an innovation for all.