CryptoBridge announced today in a press release that they will be shutting down their “decentralize exchange” because of market volatility, increasing regulation and a lack of funds. This is the second time within a week where something that claims to be decentralized has been closed by a central party, and Twitter users find it to be pretty funny.
“If it’s decentralized, how does someone decide to shut it down…. nevermind.” – @propelforward
This Tweet was a response to The Block posting a story on CryptoBridge, but also a reference to a comment made about Poloniex acquiring a decentralized exchange on November 28th. Justin Sun, founder of TRON gained control of Poloniex exchange recently, and the “decentralized exchange” is based on TRON tech, so it’s not only a conflict of interest but not truly a decentralized operation.
How exactly does one acquire a decentralized exchange?
— Mati Greenspan [not trading advice] (@MatiGreenspan) November 29, 2019
What is decentralized, and what isn’t?
The easiest way to explain decentralization to a newbie is using Bitcoin as an example and how it can’t be shut down, because nobody runs it. Because decentralization has interested so many people, it has also been used as marketing to make products seem more appealing.
Kyle Kistner, founder of a decentralized liquidity protocol called bZx wrote an informative piece regarding how decentralized decentralized finance actually is. His conclusion that even the most innovative, trustworthy and successful DeFi projects were not fully decentralized, including his own.
“These DeFi products are non-custodial, have permissionless margin calls, permissionless provision of margin call liquidity, decentralized price feeds, and decentralized interest rate determination, but centrally control platform developments & updates. Examples include bZx.” – Kyle Kistner
This quote was an excerpt from Kistner’s stages of decentralization and an example of the most decentralized a DeFi project has ever been. Bitcoin actually excels more than Ethereum in this perspective because Ethereum Devs control updates on the network. Eth users can opt out of hard forks to the network, but there is much more central governing on the mainnet where as Bitcoin improvements are on additional layers.
To summarize, trading ownership and shutting down decentralized exchanges is not truly decentralized, but virtually all decentralized projects have aspects of centralization.
Decentralized exchanges deal with less regulation, that’s a bad excuse CryptoBridge
Another thing that smells fishy about CryptoBridge’s explanation is the implication of increased regulation. In the US, one of the most heavily regulated financial environments, decentralized exchanges aren’t looked at as the same as centralized exchanges because they are merely a forum to connect buyers and sellers. Since the exchange doesn’t take custody of funds, they are not required to obtain the identity of users for the time being, which opens up options that US exchanges can’t offer like small market cap tokens and leverage.
“If a CVC trading platform only provides a forum where buyers and sellers of CVC post their bids and offers (with or without automatic matching of counterparties), and the parties themselves settle any matched transactions through an outside venue (either through individual wallets or other wallets not hosted by the trading platform), the trading platform does not qualify as a money transmitter under FinCEN regulations.” – FinCen
At this point, it should be obvious that CryptoBridge leaned to the marketing side of the word “decentralized” more than the technical aspects. Let us know in the comments if you think that the term “decentralized” is overused.