Is This the Future of Cryptocurrency Trading?

Although most cryptocurrencies are founded upon the tenets of decentralization, self-sovereignty, and privacy, the vast majority of users use their cryptocurrencies on centralized platforms that strip away many of these features.

But times are changing. Decentralized finance (DeFi) protocols are becoming increasingly accessible and powerful, and cryptocurrency users are beginning to understand the sacrifices that come with using centralized platforms. Here, we take a look at how DeFi platforms are rapidly changing the cryptocurrency trading landscape.

The Future Is DeFi
Right now, the decentralized trading landscape is still in the relatively early stages of its development. Until only recently, there was a massive gap in the DeFi trading landscape for powerful trading platforms and intuitive financial instruments, leaving traders with little choice but to use centralized platforms and sacrifice their privacy and custody of their funds.

But a clear trend is emerging. Thanks to a wave of innovation and development, services and tools that were previously offered only by centralized platforms, are now being offered by a range of truly decentralized alternatives.

This is arguably best illustrated by the recent emergence of a whole array of DeFi derivatives platforms, which now let traders speculate on cryptocurrency markets through a range of derivative products — including options, futures, and a variety of novel synthetic assets.

Take Premia as an example. It solves one of the longest-standing issues in the DeFi trading space — decentralized options. Through Premia, users can trade call and pull options for more than a dozen cryptocurrencies — including Chainlink (LINK), Bitcoin (via WBTC), Uniswap (UNI), and more through a decentralized options marketplace.

But here’s where its real potential lies — if users can’t find the option they want, they can simply mint their own unique option contracts, setting the quantity, strike price, underlying assets, and more themselves. This capability simply isn’t available from centralized platforms, demonstrating how DeFi trading solutions are beginning to gain the edge over centralized ones.

Premia isn’t the only one pushing the envelope here either. Liquidify is set to become the first platform designed to accelerate the liquidity of so-called 'long-tail crypto assets' — which are low market cap, low liquidity assets that were previously difficult to buy or trade due to a lack of availability. It overcomes this issue using a unique collateral synthetization mechanism and pooling system enabled only by its novel decentralized design.

There now exists decentralized alternatives for a wide variety of centralized trading platforms, and we are also beginning to see the first aggregators and other tools that operate on top of these to make them more accessible more capable.

Things Are Moving Fast
Decentralized finance is quickly becoming the dominant use case for cryptocurrencies and smart contracts. This is perhaps best evidenced by the staggering growth of Uniswap and similar automated market maker (AMM) platforms, which allow users to trade their cryptocurrencies without relying on a centralized exchange intermediary. In the last year, Uniswap alone saw its average 24-hour trading volume spike by more than 10,000% and became one of the ten largest cryptocurrency exchanges by trading volume.

But it isn’t just Uniswap stealing the spotlight. As it stands, five of the ten most popular DeFi protocols on Ethereum are related to trading, while the number 1 decentralized application on Binance Smart Chain is a decentralized exchange (PancakeSwap).

Through decentralized trading platforms and tools still don’t offer quite the same liquidity and usability as their centralized counterparts, the gap is quickly closing. Given the current pace of development and adoption, it may not be long until we have decentralized platforms that not only offer the same capabilities of legacy financial platforms like banks, brokerages, and trading platforms, but also offer the same liquidity.

With the emergence of platforms like Mirror Protocol — a platform that allows users to trade synthetic assets pegged to the value of real-world stocks, and Convergence — a platform that allows users to trade security tokens on DeFi platforms; we may be starting to see signs that the time when DeFi protocols can rival traditional financial incumbents is closer than many think.