- Crypto exchanges are fast becoming hybridized as the first regulated, decentralized exchange opens in Germany.
- The launch of Swarm Markets is a game changer among cryptocurrency exchanges as it combines features of both exchange models.
- $15m has already been pledged to Swarm Markets’ liquidity providers program with more expected to follow.
- This is great news for crypto enthusiasts and the market is sure to react in a bullish way.
Cryptocurrencies, the decentralized currency of the blockchain, are traded on exchanges. Traditionally, many of these exchanges are centralized, they then became decentralized as many are pushing for hybrid solutions, which will lead to a better user experience.
Swarm Markets, the first regulated, decentralized crypto exchange, has opened its doors and users are already excited about the development. The exchange received regulation from the Federal Financial Supervisory Authority (BaFin), of Germany. Transitioning into hybrid solutions could change the whole dynamic of cryptocurrency exchange around the world, something which has always been advocated for by users.
Swarm Markets’ Launch: The Saviour of DeFi.
Decentralized finance cuts out centralized third parties, like banks, which dominate traditional finance. Swarm Markets has become the first DEX to launch with KYC (Know Your Customer) and AML (Anti-Money Laundering Law) regulations.
The move has raised a lot of questions among crypto enthusiasts: To what extent will they be regulated? How can a DEX also be regulated? These questions are only to be expected of a pioneer in the hybrid sector which seeks to be regulated.
The company has expressed that the reason for the project is to protect crypto traders in dealings with counterparties which may be fraudulent due to a lack of regulation.
"We find ourselves in a perfect storm where interest rates are historically low and people’s assets are not being put to good use.”
The company further explained that, although there are certain advantages of moving trading onto the blockchain, some asset owners are concerned with counterparty risk and compliance. To kick things off, the company will be offering limited asset pools like BTC, ETH, and DAI.
Centralized vs Decentralized Exchange.
With centralized exchanges users can deposit fiat currencies to get crypto. Users relinquish direct control of their funds to the exchange, which then handles trading on their behalf off-chain within their centralized entity.
Centralized exchanges ensure speed as trades are not performed on the blockchain and are regulated.
Decentralization exchanges, on the other hand, were developed to tackle the centralized nature of exchanges.
Cryptocurrency is decentralized money, so its trade and transfer ought to be decentralized rather than be handled by a single regulated entity. DEX has no use for KYC or AML, and transactions occur directly on the blockchain without a third party.
On the Flipside
- As a new innovation, the exchange may struggle at first, due in part to the current market crash, which has led to reduced use of DeFi protocols.
- Centralized exchanges, like Binance and Coinbase, have higher liquidity than Swarm Markets, and this may cause a reduction in growth.
What Does This Mean for Crypto?
The launch of Swarm Markets is a positive development for cryptocurrency and DeFi at large, as it finally achieves the goal of the integrated decentralized status of cryptos coupled with increased liquidity.
Liquidity has been a major hindrance to the success of most decentralized exchanges affecting their growth. Centralized exchanges are more likely to have high liquidity due to their regulated nature, so users can trust them with their funds.
Swarm Markets as a regulated, decentralized exchange has already announced that it has received $15 million in its robust liquidity program, with more to come. The market will surely react in a bullish way to news of the launch.