- The bank’s strategists, led by Nikolaos Panigirtzoglou, warned clients on Thursday.
- Post FTX fall, the crypto market went into a state of shock with a domino effect.
JPMorgan predicted that centralized exchanges would continue to dominate the bulk of global digital-asset trading volumes despite predictions from certain crypto analysts that a move toward decentralized platforms would follow after FTX’s demise.
The bank’s strategists, led by Nikolaos Panigirtzoglou, warned clients on Thursday that the DEXs’ slower transaction speeds, pooling of assets, and order-traceability characteristics are likely to restrict institutional involvement.
Not Convinced Despite Recent Surge
Analysts also noted that DEXs’ reliance on price oracles that source data from centralized exchanges, as well as their vulnerability to hacks, exploits, the need for over-collateralization, and systemic risks from the cascade of automated liquidations, were all factors that worked against their widespread adoption.
The team noted:
“Risk/return trade-off more difficult to assess in DeFi (decentralized finance) given the use of different tokens in terms of assets borrowed or lent/collateral posted/received interest payments and given the general absence of limit order/stop loss functionality.”
According to DefiLlama statistics, trade volumes on decentralized platforms increased 68% to $97.22 billion this month from October, the biggest since May, after the collapse of Sam Bankman-controlled Fried’s exchange FTX.
The team further noted:
“The management, governance and auditing of DeFi protocols without compromising too much on security and centralization is a big challenge.”
According to many analysts, this indicates a trend toward more decentralized forms of finance. JPMorgan acknowledges the recent increase in DEX trading volume but does not believe it to be the beginning of a major long-term trend. Post FTX fall, the crypto market went into a state of shock with a domino effect reflecting in several firms with exposure.
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