Decentralized Exchanges Aren't Living Up to Their Name

Over the past year, dozens of cryptocurrency trading platforms have marketed themselves as decentralized exchanges.

The main selling point is that unlike today's better-known crypto trading platforms, a decentralized exchange shouldn't require traders to store their money with a third party that can be hacked.

According to data collected exclusively for CoinDesk from July 2 to July 12 by the ethereum analytics firm Alethio, as well as interviews with market participants, what decentralized exchange models actually offer is a spectrum of technologies with varying degrees of centralization.

Some attempt to decentralize a traditional exchange company, such as the Huobi Chain Project announced in June, while others seek to build a community with stakeholders around a peer-to-peer model, like 0x. "Decentralized exchanges are making headway toward the re-elimination of central parties in that system," said Wall Street veteran Jill Carlson.

An exchange platform might be highly centralized in one dimension but quite decentralized in others.

To be fair it could be argued that the 0X ecosystem is arguably more decentralized than other exchanges in the way that counts the most.

Marshall Swatt, founder of the institutional crypto asset exchange Swatt Exchange, argued that decentralized exchanges are merely "a fancy form" of over-the-counter trading that won't be able to scale.

"I just think the lack of fiat on-ramps, the lack of governance, and the lack of compliance, are going to relegate decentralized exchanges to the margins."

None of the shortcomings of current decentralized exchanges have quelled the DEX fervor sweeping the industry.

So does the legacy platform provider Huobi, which announced in June it's offering roughly $166 million to a fund for contributors to the upcoming Huobi Chain Project, which aims to establish a decentralized autonomous organization and eventually incorporate parts of Huobi's exchange.