Until fairly recently, American citizens could freely trade hundreds of digital assets across exchanges such as Bittrex, Poloniex, Bitfinex, and Binance. Those options have been rapidly whittled down, however, as centralized exchanges have been forced to either exclude the U.S. altogether or render the majority of their assets off-limits to traders east of the Atlantic.
The U.S. remains a challenging environment for centralized cryptocurrency exchanges, with major players significantly scaling back their operations and others heading for the door. The most recent casualty of America’s stringent regulatory climate is one time market-leader Poloniex, which has “spun out” from parent company Circle, spinning out of the U.S. market in the process and leaving a void for other exchanges to fill.
Poloniex Heads for the Door, Other Exchanges Enter
Following a buyout from an Asian investment group, Poloniex will continue to operate internationally, but U.S. customers will be forced to cease trading from as early as November 1. Binance and Bittrex have also been given pause to reconsider their American strategies, vastly reducing the number of trading pairs available to customers in the USA. As centralized exchanges continue to struggle with regulation and red tape, the market seems primed for alternative solutions such as decentralized exchanges and token swapping protocols that aren’t so easily cowed by regulators. It’s a lucrative space which new players are actively seeking to exploit.
The Decline of Centralized Exchanges
American traders find themselves particularly ill-served by centralized exchanges. Not only do they have fewer platforms to trade on, but the available options are severely crippled and a poor reflection of the true state of the crypto market in 2019. Poloniex has officially hit the iceberg and is abandoning ship, Bittrex is severely wounded and a shadow of itself. Coinbase, Kraken and the relaunched Binance US are all options, but each has limitations due to a need to appease regulators, resulting in a sub-optimal experience. Coinbase is more truthfully a brokerage in any case, Kraken is struggling to innovate in the strict regulatory climate it finds itself in, and Binance US is possibly the least satisfying iteration of the exchanges, providing only a fraction of the trading pairs enjoyed by customers elsewhere.
U.S. traders are effectively operating with one hand tied behind their back while being force-fed the decaf soy milk latte of crypto. For those who want to enjoy full mobility and to drink in the “full fat” experience, two practical options remain: VPN or DEX. In the case of the Binance DEX, U.S. customers would need to use both, firing up a VPN to connect to the DEX, which defeats at least one of the reasons for choosing a decentralized exchange in the first place. Moreover, should an exchange find that U.S. customers are illegally accessing it, it could potentially freeze funds, which presents another headache.
From a legal perspective, a DEX is bound by the same rules and regulations as any centralized exchange, but if it is decentralized enough to have no formal company structure, U.S. regulators are largely powerless to act. Quite simply, if a DEX can be accessed from the U.S. then it can be traded upon. Of the existing options, Uniswap and Bancor are the leading Ethereum-based candidates, in terms of UX certainly, but also with regards to liquidity. Bancor has cracked the liquidity problem through the use of liquidity pools that enable conversion between tokens through the use of multiple smart contracts. Cotrader has built a DEX on the Bancor protocol that promises a “free, open source, unrestricted portal into the Bancor network”, enabling anyone, anywhere to trustlessly trade ERC20s.
Can’t Poloniex the DEX
Decentralized exchanges have been a long-held dream of the crypto community, but until recently, the drawbacks of using one mostly outweighed the benefits. Now the tide is finally turning as decentralized trading matures and key players become more adept at meeting customer expectations. The user experience has been greatly improved, order matching is faster, and slippage has been minimized through plugging into multiple liquidity pools.
Further, the very nature of decentralized exchanges means they cannot be easily censored and stopped. Without a central point of attack, DEXs avoid the vulnerabilities inherent to centralized exchanges, including being at the mercy of U.S. regulators. Now ever greater numbers of Ethereum DEXs are emerging including Nash, which bridges Ethereum and NEO, Loopring’s Dolomite DEX, and Dex.blue. There are also P2P platforms such as local.Bitcoin.com which enable users to swap BCH without the need to deposit funds.
Another decentralized exchange which has opened to the sort of fanfare you would expect from a John McAfee project is McAfeeDex. As one of crypto’s most prominent and colorful characters, McAfee is certainly more than capable of getting the word out on his latest venture, but whether his eponymous DEX will fill the vacuum left by centralized exchanges remains to be seen.
It would be naive to think that decentralized exchanges can replace their centralized counterparts at this point in time; the fact that most DEXs are native to one blockchain only means the tech isn’t even capable of supporting seamless trading of multi-chain assets; wrapped workarounds such as WBTC are the closest substitute, currently. For U.S. traders craving the full trading experience, a combination of top 20 assets on centralized platforms and the long tail of ERC20s on decentralized protocols is about as good as they’re gonna get.