But why is decentralized trading needed in the first place? Well, for a start, because centralized trading platforms have repeatedly shown that they cannot be trusted. Broker-dealers regularly provoke the ire of regulators by misleading clients, ignoring market abuse, and even selling order flows to high-frequency trading firms who then front-run trades to shaft regular retail users.
There’s gotta be a better way.
Retail Traders as Cannon Fodder
In a recent blog, BitMEX cofounder Arthur Hayes railed against the sort of malpractice that has driven traders to DeFi in droves. “Retail traders in aggregate supply the cannon fodder for Hamptons pads, Monaco F1 jaunts, and 100,000 GBP bar tabs at The Box,” he wrote. “But they still are treated like children and chastised when they ‘act up’. The rules of the game could not be clearer — and if you don’t like them, walk off the field.”
While not all of the capital that has flooded into decentralized finance has come from participants who, in Hayes’ words, “feel raw with the surfeit of perceived inequalities,” it’s reasonable to suppose that irritable tradfi traders represent a growing proportion. The recent GameStop scandal was followed, perhaps inevitably, by a slew of articles from DeFi players pointing out that such chicanery would be impossible on permission-less platforms.
Disillusioned traders aren’t just exiting equities markets to explore crypto; within the digital asset market itself, individuals and institutions are exercising autonomy by withdrawing bitcoin from centralized exchanges, whether to move funds to self-custody, leverage the collateral for cash, or lend to speculators. Amazingly, over half a billion dollars worth of bitcoin is leaving dominant US exchange Coinbase every week.
The appeal of decentralized trading platforms is obvious. Why pay a human broker charging eye-watering commission when you can place your trust in autonomous smart contracts? Why trust a platform that can hit a kill switch when their pals are getting burned? When the Chairman of Interactive Brokers admitted that they deactivated the buy button on $GME to avoid eating huge losses, it was a wakeup call for many everyday traders: centralized trading was a loaded die. Luckily, there is an alternative.
How Defi Levels the Playing Field
By utilizing distributed ledger technologies, DeFi platforms enable trustless value transfer and effectively eliminate the sort of underhand finagling that has long been a trademark of Wall Street. Apolitical, censorship-proof, and fully transparent, decentralized trading protocols have no board of directors or AGMs, and nor do they have a single point of failure. Moreover, they give users from anywhere in the world the ability to trade cryptocurrency peer-to-peer, as well as to earn yield and obtain loans.
In the Robinhood congressional hearing, Democrat Carolyn Maloney accused CEO Vlad Tenev of “reserving the right to make up the rules as you go along.” But in DeFi, the rules are hardcoded, the projects open-source. Away from the walled gardens and cronyism that have defined CeFi, an informal community of everyday investors discuss opportunities, appraise altcoins, and build their portfolios without fear of being shut out or shut down.
Ethereum is the dominant settlement layer in crypto, processing around $12 billion of daily transactions and supporting a defi industry that continues to thrive. Other blockchains are getting in on the act though, not least Polkadot which was founded by Ethereum co-creator Gavin Wood. Notable for its high throughput and Substrate development framework, Polkadot has the potential to expand DeFi beyond its present capabilities, and to facilitate the seamless transfer of value between blockchains. The economic scalability offered by Polkadot and its parachain-based infrastructure is seen by many as a game-changer in DeFi’s bid to “bank the unbanked” and truly democratize finance.
Swing is looking to usher in a new era for decentralizing trading. A non-custodial, cross-chain asset exchange and decentralized liquidity protocol, it builds upon the synergies of the Polkadot and Ethereum blockchains to let users trade Polkadot, Ethereum, and ERC20 assets in one place at the best possible price.
As well as offering low trading fees and an intuitive UX, Swing uses smart contracts, relayers, and bridges to aggregate liquidity across leading Ethereum and Polkadot DEXes. Integration with Moonbeam’s smart contract parachain, meanwhile, supports full compatibility with the powerful Ethereum Virtual Machine (EVM). By enabling cross-chain communication with multiple blockchains, Swing embodies the innovation and ingenuity at the heart of DeFi.
The debate around decentralization is unlikely to die down. Against the ugly backdrop of GameStop, DeFi trading presents us with a fascinating case study, an alternative to the centralized system of old. Decentralized finance is about creating an experience which is fully permission-less using technology that can’t be found in centralized institutions. Whether it can bank the unbanked and return power to the people remains to be seen.