The crypto market conditions have had a significant impact on the operations and continuity of many centralized exchanges (CEX). Most of them have had to lay off staff, and some have even had to close or are on the verge of bankruptcy. In fact, it looks like exchanges have been barely profitable this year and may have had too many employees.
Negative NetFlow of BTC
The collapse of FTX and the expected increase in compliance costs due to tighter regulation will also be challenges for exchanges. In addition to these problems, there has been a lot of Bitcoin flowing out of exchanges recently. From November 7th to December 29th, 354586 BTC left exchanges, which could seriously affect their liquidity and stability.
Kraken’s Decision to Exit Japanese Market Reflects Struggles of CEX
One example of this is Kraken’s decision to stop operating in Japan and no longer offer crypto trading through its Japanese subsidiary. The company said the move was “part of Kraken’s efforts to prioritize resources and investments in those areas that align with our strategy and will best position Kraken for long term success.” It cited a combination of “current market conditions in Japan” and a “weak crypto market globally” as the reasons behind its decision.
Binance’s Resources and Power Give it an Edge in Bear Market
It’s not clear which exchanges will survive in the coming year, but it seems that bigger players like Binance, with more resources and power, may be better equipped to handle the bear market conditions. Binance.US manage to acquire Voyager Digital in a $1.02 billion deal, weeks after a planned FTX-Voyager acquisition failed as a result of FTX’s collapse and Sam Bankman-Fried’s arrest.
DEX and DeFi Offer Potential Solution to CEX Challenges, but Face Obstacles
However, having a lot of liquidity and trading volume concentrated in just a few big exchanges could be risky for the industry, since any problems at one of these exchanges could have a negative impact on the whole industry.
Decentralized exchanges (DEX) and decentralized finance (DeFi) could be the solution, but they have to overcome several challenges, including slower growth and low liquidity, as well as security risks and limited recovery ability.
Improving DeFi Adoption Through User Experience and Risk Reduction
DeFi’s lack of liquidity and failure to attract traditional business and industry may be holding it back from mainstream adoption. To overcome these challenges and become more mainstream, DeFi needs to focus on making it easier to use and more valuable for users. It also needs more integrated solutions to improve the user experience and gain user trust through risk reduction. By addressing these issues, DeFi can appeal to more people and set the stage for its next bull market.