The prospects of interaction between centralized and decentralized cryptocurrency instruments remain uncertain for the global blockchain community. Seasoned expert Arjun Balaji, partner in the Paradigm investment firm, has shared his forecasts in a comprehensive article, Crypto Market Structure 3.0.
Markets 1.0-2.0: From MtGox to institutional services
Prior to an analysis of the DeFi/CeFi/CeDeFi perspectives, Mr. Balaji remarked briefly on the history of cryptocurrencies trading. Its first stage covered the period between the invention of the first digital currencies protocols and the crypto euphoria of 2017. The most significant milestones of the first phase included the launch of massive pioneering trading environment MtGox, the introduction of stablecoins and the rise of over-the-counter (OTC) exchange operations.
Crypto's market structure is evolving rapidly but remains opaque.— Arjun Balaji (@arjunblj) October 2, 2020
At @Paradigm, we believe robust markets are essential to crypto's long-term growth.
This is an outline of the two major evolutions of the last decade and where we’re headed: https://t.co/k2plfRyD5o
December 2017 marked a quantum leap in crypto trading and opened the Markets 2.0 stage, according to Mr. Balaji. It was the period of maturation for the crypto trading ecosystem. Derivatives liquidity and trading volume surpassed spot indicators by a wide margin, while OTC services migrated from Skype to well designed platforms.
The emergence of crypto lending reduced the "entry ticket prices" of crypto markets, and the rise of stablecoins allowed them to replace Bitcoins (BTC) as the main reserve asset.
Then, the influx of institutional money into the crypto segment completely reshaped the landscape with plenty of dedicated services and instruments.
CeFi vs. DeFi: Markets 3.0
The Markets 3.0 stage started in 2020 amidst overwhelming decentralized financial protocols euphoria. Mr. Balaji admitted that DeFi has already surpassed CeFi (centralized crypto institutions) in numerous aspects. DeFi provides more natural access to liquidity, allows on-chain execution of orders and enables new margin trading tools.
Furthermore, some top-tier DeFi has delivered an intuitive user experience with QR codes, native Metamask integration, etc. Thus, DeFi disrupts CeFi, but CeDeFi—the systems that merge the benefits of both approaches—will exist in Markets 3.0.
Binance Smart Chain, with its full Ethereum compatibility, is the textbook example of CeDeFi. Although, as CryptoComes reported previously, some competitors treat Binance Smart Chain as a centralized database.
Mr. Balaji claims that, in the next stage of development, decentralized financial protocols should start onboarding institutional investors.