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Experts Roundtable: What DEXs Must Do Better for Adoption

Experts Roundtable: What DEXs Must Do Better for Adoption

Binance, one of the most prominent cryptocurrency exchanges in the decentralized finance (DeFi) industry, was recently hit with one of the biggest fines in crypto history. As part of its plea deal, the company is set to pay a $4.3 billion fine, and its co-founder and former CEO, Changpeng Zhao (CZ), had to step down from his position.

Following the Binance debacle, Bittrex Global, another crypto exchange, has decided to stop its operation in the United States.

The murky Proof of Reserves and ensuing lawsuits and regulatory uncertainty of CEXs have led many people to leap to decentralized exchanges (DEXs).

So we ask the experts: What can DEXs learn from their centralized cousins in 2024?

Binance Plea Deal Highlights Importance of DEXs in Crypto Space

DEXs manage to solve several problems either caused or suffered by CEX centralized exchanges (CEXs) like Binance and FTX.

A large part of that is removing the centralized “moneypot” and authority, David Bleznak, the managing partner at Draper Goren Blockchain (DGB), told Technopedia.

“In an ideal world, there would be no central entity to incur penalties or fines if the DEX is actually decentralized. However, in practice there are usually parties involved in getting the DEX off the ground or even further operating some critical infrastructure (see Uniswap Labs).

 

These entities can follow the law and continue to forgo hosting front-ends that facilitate trading of fraudulent tokens or other prohibited activity.”

Anndy Lian, the author of NFT: From Zero to Hero, added that the recent Binance news highlighted how important decentralized exchanges are for cryptocurrency.

“Binance is facing legal challenges from various regulators around the world, who accuse the platform of violating financial laws and facilitating illicit activities.

 

“This has raised concerns among users about the security, privacy, and accessibility of their funds and data on centralized platforms. DEXs, on the other hand, offer a more decentralized and trustless alternative, where users can trade directly with each other without intermediaries or censorship.”

Moreover, DEXs allow users to have access to a much more comprehensive range of crypto assets and services like derivatives, lending, and non-fungible tokens (NFTs) that may not be available or compliant on centralized platforms.

DEX Regulatory Compliance – A Must

Regulatory compliance is one of the most crucial aspects DEXs must remember to prevent a recurrence of events similar to those surrounding Binance, Lian told Technopedia.

Adhering to regulatory standards ensures legal scrutiny and oversight, fostering trust among users, exchanges, and authorities.

Lian stressed:

“While DEXs may not have a central authority or entity that can be held accountable, they still need to respect the laws and rules of the land, especially when it comes to anti-money laundering, counter-terrorism financing, consumer protection, and taxation.”

Unfortunately, the recent events surrounding Binance have forced an array of negative headlines to circulate in the cryptocurrency industry; however, the fact that the Binance case has been settled provides some stability and certainty within the space, Ben Weiss, the CEO and co-founder at CoinFlip, noted.

“The issues facing Binance have shown that where a company is based won’t impact the basics of sanctions screening and AML/KYC.

 

“I believe decentralized exchanges are going to also be expected to perform the basics of AML/KYC and sanctions screening, and just because an exchange is decentralized doesn’t mean governments won’t expect their laws and regulations to be followed.”

Lian added that DEXs could use the Binance case as a case study to strengthen their operations by implementing appropriate measures and mechanisms to ensure AML/KYC compliance, geo-blocking, governance, and auditing. Moreover, DEXs can also collaborate and communicate with regulators and policymakers to ensure nothing goes unnoticed.

DGB’s Bleznak said:

“It has taken a long time for the true (crypto) believers to accept that code is not law… law is law, and we have not just a responsibility but an obligation and civic duty to uphold the rule of law.

 

It is important, no matter how decentralized we make these systems, to keep this perspective. Further, we should all act morally outside of the rule of law and choose not to cut corners or let our greed get the best of our decision-making.”

Education and Staying Up-to-Date Are Key

According to Lian, one of the key challenges faced by DEXs is the lack of awareness and understanding among users about the risks and benefits associated with decentralized trading, which is why educating users is another key aspect DEXs must consider.

“Decentralized trading can offer users more freedom, choice, and control over their assets and transactions, but it also requires more responsibility, knowledge, and skill.

 

“Users need to be aware of the potential pitfalls and dangers of decentralized trading, such as volatility, liquidity, slippage, scams, and bugs. Users also need to be familiar with the technical aspects and mechanisms of decentralized trading, such as wallets, keys, gas fees, swaps, and pool.”

However, this can be easily achieved through  “comprehensive guides, interactive tutorials, and community engagement initiatives,” DGB’s Bleznak explained.

Another initiative DEXs could consider is partnering with educational platforms and influencers in the digital assets industry, which could broaden their reach.

However, because DEXs leverage the power of smart contracts, staying up to date with the latest technological developments is another key aspect DEXs should keep in mind in the new year, CoinFlip’s Weiss added.

“The biggest challenges for DEXs are related to the user experience, such as complicated interfaces and thin liquidity.  That said, DEXs are innovating rapidly such as by using layer 2 solutions to increase scalability and capacity.”

In addition, DEXs can also leverage emerging technologies like Layer 2 scaling solutions, sharding, and cross-chain interoperability to address some of the current challenges they may face, like high transaction fees, network congestion, and limited asset diversity, Bleznak said.

“Implementing these technologies can enhance the user experience by reducing transaction costs and improving transaction speeds.”

DEXs Have Big Potential to Democratize Finance

CoinFlip’s Weiss noted that DEXs “have a lot of potential to democratize finance” because they eliminate the intermediaries present in traditional finance and are especially important in countries that have historically had little banking and financial infrastructure.

“DEXs are harder to navigate than CEXs from both a user learning curve and user interface perspective.

 

“That said, because the wallets are non-custodial, DEXs can be a more secure option than a CEX but only if the user has the sophistication level necessary to navigate a platform that will more likely have a complicated interface and require knowledge of crypto.”

DEXs Can Strike a Balance Between User Privacy and Security

Moreover, DEXs can balance user privacy and security by leveraging advanced cryptographic techniques like zero-knowledge proofs, which enhance privacy while maintaining security.

User privacy is one of the main advantages of DEXs as users can trade anonymously without disclosing their personal information or financial data, Lian added.

“However, user privacy can also pose risks and challenges, such as fraud, theft, hacking, and abuse. Therefore, DEXs need to implement robust security measures to protect users and their funds, such as encryption, multi-signature, smart contracts, and insurance.

 

“DEXs can strike a balance between maintaining user privacy and implementing robust security measures by adopting a risk-based approach, where they apply different levels of verification and protection depending on the type, size, and frequency of transactions.”

The Bottom Line

In navigating the challenges posed by the recent Binance lawsuit, decentralized exchanges must prioritize regulatory compliance, emphasizing adherence to legal standards that will build trust among users, the exchanges themselves, and regulating bodies.

Educational initiatives are crucial to raising awareness about the risks and benefits of decentralized trading, requiring DEXs to provide comprehensive guides and engage with the community.

Meanwhile, staying abreast of technological advancements, leveraging emerging solutions, and finding a balance between user privacy and security will be key in unlocking the vast potential of DEXs in 2024.

 

 

 

Source: https://www.techopedia.com/decentralized-exchanges-adoption-challenges-expert-panel

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
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What you should know about how tokenised digital money helps with safer transactions

What you should know about how tokenised digital money helps with safer transactions

Like most Singaporeans, Mr Leslie Koh, 50, welcomed the $300 worth of Community Development Council (CDC) vouchers he received.

He was one of over 1.1 million, or 90 per cent, of Singaporean households who had claimed the third tranche of the vouchers within a month of its launch in January.

The vouchers were part of the Government’s measures to support Singaporeans with cost-of-living concerns. Of the $300, half could be used at participating hawker stalls and heartland merchants’ stores, and the other half at participating supermarkets.

Residents claim the vouchers at go.gov.sg/cdcv. They will receive a link on their verified mobile numbers, where vouchers in fixed denominations of $2, $5 and $10 can be accessed.

To use them, you select the amount, get a QR code, and show it to participating merchants to scan and complete the transaction. The current tranche of vouchers will be valid until Dec 31, and can be claimed any time until then.

“My wife and I found the CDC vouchers convenient and easy to use,” says Mr Koh, an editor at a Christian organisation. “We redeemed most of it at the neighbourhood hawker centre, provision shop and barber.”

So it seemed easy to use. But was it as easy for merchants to accept? Not quite.

The Problem

An AsiaOne report last year revealed that the scheme faced teething issues shortly after it was first launched to all Singaporean households in December 2021.

Some older hawkers were unfamiliar with accepting digital payments and tried to avoid accepting CDC vouchers. Others were short-handed and found it quicker to accept cash. Some hawkers shared that they were duped by consumers who used fake QR codes that did not result in any payment being made.

For voucher schemes like CDC, merchants must also sign separate contracts before joining a new phase of the campaign – even if they had participated in previous ones, notes the Monetary Authority of Singapore (MAS) in its Project Orchid White Paper released last November.

Project Orchid, launched by MAS in 2021, seeks to explore and experiment with the infrastructure needed to implement a digital Singdollar.

Money glossary

Retail Central Bank Digital Currency (CBDC): Digital equivalent of today’s notes and coins, issued by a central bank. It exists only in electronic form. In Singapore, it is known as a digital Singapore dollar (Singdollar).

Wholesale CBDC: Digital currency that is confined to interbank systems and does not enter the public space, used only by financial institutions.

Fiat currency: The money that we know and use every day, declared legal tender by a government. It can exist in digital or physical form.

Purpose-bound money: A protocol that sets the conditions upon which an underlying tokenised digital currency can be used.

Tokenisation: The process of converting an asset into a digital token on a blockchain, or digital ledger.

The voucher claiming process also requires all parties – such as the merchants, voucher issuer and bank – to ensure accurate cash flow. Any discrepancies could lead to a “long and costly dispute resolution process”, notes the MAS.

Nevertheless, interest among merchants has grown. The number of participating merchants increased from about 10,000 in 2021, to over 22,000 this year.

But is there a better way to administer such schemes?

The Possible Solution

Purpose-bound money (PBM) could potentially address these issues, says Ms Janet Young, managing director and head of Group Channels and Digitalisation at UOB.

PBM refers to a protocol that sets the conditions upon which an underlying tokenised digital currency can be used.

It controls how the money is spent by “wrapping” rules or conditions around it. These rules can limit spending to specific merchants or particular goods or services.

For example, the Government can use PBM to issue vouchers such as those by the CDCs, which can only be used at participating merchants, and cannot be used beyond the expiry date. If these conditions are met, the digital money is “unwrapped” and released instantly to the merchant during the transaction.

“PBMs, allocated for specific uses or goals, offer several benefits,” says Ms Young. “It promotes financial discipline, ensures funds are directed toward intended objectives, reduces the risk of misallocation, and addresses inefficiencies of the current voucher schemes.”

Intergovernmental blockchain expert Anndy Lian points out that PBMs can enhance payment security and transparency by ensuring that the underlying digital money is used only by the intended person, and for the specific reason spelt out in the PBM.

“PBMs can be used for anti-money laundering, counter-terrorism financing, or tax compliance purposes, where the underlying digital money is traceable and reportable,” Mr Lian explains.

To UOB, PBM is “an important element in the future of digital money as it enables money to be directed towards a specific purpose, without requiring the money itself to be programmed”, says Ms Young.

“As we uncover the potential of PBMs, we open doors to a future of digital money that can direct allocations, driving opportunities for innovation, value creation and efficiency.”

The Potential

MAS’ Project Orchid is exploring the use of PBMs, and various trials have been initiated with banks and the private sector on the applications of PBMs and a digital Singdollar. To support MAS’ efforts, UOB has run three pilot trials so far.

Last year, UOB partnered with SkillsFuture Singapore to explore how the disbursement of SkillsFuture credits for courses by overseas training providers could be enhanced, using a digital Singdollar issued by the bank. The pilot is expected to be completed by the end of the year.

More on the Future of Finance

At the Formula One festivities in September, UOB worked with Grab and fintech firm Fazz to launch the Singapore Pitstop Pack. Participants could use PBM-based commercial vouchers to make purchases. The vouchers can be used until the end of the year at over 200 participating merchants islandwide, and are available to locals and tourists.

Last month, at the Singapore Fintech Festival, UOB and OCBC ran a trial on the fungibility of a digital Singdollar and interbank settlement using a simulated wholesale CBDC. As part of the trial, participants could request PBM from one bank, and use it to claim a piece of merchandise from the other.

Ms Young says: “The successful completion of the last two pilots represents a significant stride in Singapore’s larger ambition to work towards a truly seamless financial ecosystem with domestic and cross-border applications.”

 

Source: https://www.straitstimes.com/business/what-you-should-know-about-how-tokenised-digital-money-helps-with-safer-transactions

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

The Binance Effect: What CZ’s Exit Means for Crypto Markets

The Binance Effect: What CZ’s Exit Means for Crypto Markets

Binance, the world’s largest cryptocurrency exchange by trading volume, has been facing a series of regulatory challenges in various jurisdictions since 2022.

The US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have both filed lawsuits against Binance and its CEO Changpeng Zhao, also known as CZ, for allegedly violating securities and derivatives regulations, among other charges.

They have also been fined by the Dutch Central Bank, the UK Financial Conduct Authority, and the Australian Securities and Investments Commission for offering crypto services without proper authorization.

In a not-so-surprising move (at least to me), CZ announced on November 21, 2023, that he was stepping down as the CEO and handing over the reins to Richard Teng, the former head of their non-US markets. CZ said that he made this decision to “focus on the bigger picture” and to “support the growth of the crypto industry as a whole”. He also said that he was confident in Teng’s leadership and that he would remain as the chairman of the board.

What does this mean for Binance? Is there any impact on the crypto industry?

CZ’s departure from the CEO role could have both positive and negative implications for Binance and the crypto industry. On the one hand, it could signal a shift in the company’s strategy to become more compliant with the regulators and to cooperate with the authorities to resolve the pending lawsuits. Teng, who has a background in traditional finance and regulation, could bring more credibility and stability to their operations and reputation.

He could also leverage his experience and network to expand it’s presence and partnerships in new and emerging markets, such as Africa, Latin America, and the Middle East.

On the other hand, CZ’s departure could also create some uncertainty and risk for Binance and the crypto industry. CZ has been the face and the voice since its inception in 2017. He has built a loyal and passionate fan base among the crypto community, who admire his vision, innovation, and charisma. He has also been a vocal advocate and defender of the crypto industry, often challenging the regulators and the critics on social media and in interviews.

When I looked online, some of his supporters felt disappointed by his decision to step down, and if not handled properly they may lose trust or interest in the exchange. Moreover, CZ’s departure could also create a power vacuum or a leadership crisis within, as Teng may face resistance or opposition from some of the existing executives or employees who are loyal to CZ or who have different views or agendas.

Based on what I know Teng, a fellow Singaporean is well respected by their English-speaking colleagues and has been making important decisions within the ecosystem for a while. I think there isn’t any major issue.

Paying the fine in this early stage is a good move for CZ. He is a free man. He is still the largest shareholder. This may also mean that BNB price will go up. Here’s why.

One of the reasons why CZ decided to step down as the CEO was to settle the lawsuits with the US regulators and to pay the fines that they imposed on him and the company. According to the Yahoo Finance, they have agreed to fork out a total of $4 billion to the SEC and the CFTC to resolve the allegations of operating unregistered exchanges, selling unregistered securities, mishandling customer funds, and violating derivatives rules. The settlement also includes a requirement for Binance to hire an independent monitor to oversee its compliance with the US laws and regulations. CZ has also agreed to pay $50 million and sentencing will occur at a later date.

Paying the fine in this early stage is a good move for several reasons. First, it could help them avoid a prolonged and costly legal battle that could drain their resources and damage their reputation. Second, it could help them restore their relationship and trust with the US regulators and the US market, which is one of the most important and influential in the crypto industry. Third, it could help them clear their name and reputation from the allegations and accusations that have been hanging over their heads for months. Fourth, it could help them focus on their core business and innovation, rather than on legal and regulatory issues.

By making this move, CZ is also freeing himself from the legal and regulatory burdens and risks that come with running a global crypto exchange. After all, he is still the largest shareholder, which means he still has a significant stake and influence in the company. He can also pursue other interests and projects that he is passionate about, such as philanthropy, education, research, or even launching a new venture. He can also continue to support and promote the crypto industry as a whole, as he said in his announcement.

This may also mean that BNB price will go up. Here is why.

BNB is the native token of Binance, which is used to pay for fees, access services, and participate in various activities on the exchange platform and ecosystem. BNB is also one of the most popular and widely used cryptocurrencies in the market, with a market capitalization of over $35 billion as of November 20, 2023, ranking fourth among all cryptocurrencies according to CoinMarketCap.

The price has been affected by the regulatory challenges and lawsuits that they have faced in the past year. It reached a high of $349 in April 2023, but then dropped to around $206 in October 2023, amid intensified scrutiny and pressure from the regulators. It has recovered somewhat since then, trading at around $253 as of November 21, 2023, but still below its peak level.

However, the BNB price could benefit from the settlement and the leadership change that has been announced. The settlement could remove the uncertainty and the downside risk that have been weighing on the price for months. It could also boost the confidence and the sentiment of the holders and investors, who may see the settlement as a positive sign of commitment and ability to comply with the regulators and to operate legally and legitimately in the US and other markets.

The leadership change could also create new opportunities and possibilities for Binance and BNB, as Teng may introduce new products, services, partnerships, and innovations that could increase the demand and the utility of the token.

Does that mean after paying the US, UK and many other countries will start doing the same and open another can of worms?

The settlement with the US regulators does not necessarily mean that they are off the hook from other countries that have also taken action against them. The settlement only covers the US jurisdiction and does not affect the ongoing investigations or proceedings in other countries, such as the UK, Germany, Japan, Singapore, and Canada.

They may still face legal and regulatory consequences in these countries, depending on the nature and severity of their alleged violations. They may also have to pay additional fines or penalties or comply with additional requirements or restrictions, in order to operate or offer their services in these countries.

The settlement with the US regulators could also have a positive effect on their relations with other countries. The settlement could demonstrate their willingness and ability to cooperate and compromise with the regulators and the authorities, and to take responsibility and accountability for their actions and mistakes.

The settlement could also set a precedent and a benchmark for other countries to follow, in terms of how to deal with Binance, and how to resolve their disputes or issues. The settlement could also encourage them to improve and enhance their compliance and governance standards, and to align their operations and activities with the local laws and regulations of the countries where they operate or offer their services.

In a nutshell

The recent developments surrounding Binance, including CZ’s decision to step down as CEO and the settlement with US regulators, undoubtedly provoke speculation about the future of Binance and the broader crypto industry. As CZ relinquishes his role, both positive and negative implications emerge for Binance’s trajectory.

This move could signify a strategic shift within Binance, aiming to embrace regulatory compliance and foster stability under Richard Teng’s leadership. Teng’s background in traditional finance and regulation might herald a more compliant and credible approach, potentially expanding Binance’s global presence.

However, CZ’s departure may also introduce uncertainties. His charismatic leadership and vocal advocacy for the crypto community have garnered a loyal following, raising concerns about potential trust erosion or a leadership vacuum within the exchange. Yet, based on the insights available, Teng’s leadership seems promising, garnering respect within the ecosystem and potentially mitigating any major disruptions.

Notably, CZ’s move to settle the lawsuits and pay fines signals a strategic decision to preempt prolonged legal battles. This resolution could restore trust with US regulators, essential for their operations within the influential US market, and may help repair their reputation marred by past allegations. Maybe start a brand new decentralized Web3 journey with their newly launched Web3 wallet product.

Nevertheless, the settlement only addresses US regulatory concerns, leaving unresolved legal matters in various other jurisdictions. Consequently, Binance may face continued challenges and potential penalties or restrictions in these regions, depending on ongoing investigations and the gravity of alleged infractions.

The impact of these recent developments extends beyond Binance itself. The settlement may set a precedent for how other countries approach Binance’s regulatory compliance and pave the way for improved governance standards within the crypto industry globally.

The burning question remains: Will other countries follow suit in demanding similar settlements from Binance, further complicating their legal landscape? The answer lies in the subsequent actions of global regulators, as each country’s response may significantly shape Binance’s future and the broader regulatory environment for cryptocurrencies worldwide.

As the crypto industry witnesses this pivotal moment, the repercussions of CZ’s departure and the settlement with US regulators continue to raise critical questions. How will these events influence Binance’s strategies, partnerships, and innovations moving forward? Can this settlement establish a framework for improved industry compliance on a global scale?

The coming days will provide clarity on the far-reaching implications of these recent events, not just for Binance but for the evolving landscape of cryptocurrency regulation worldwide.

 

 

Source: https://www.blockhead.co/2023/11/22/the-cz-effect-binances-overhaul-and-what-it-means-for-crypto-markets/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j