Services like staking are seeing growth in terms of value and the percentages of the network controlled by these organized cartels. Several such paradigms such as tax management and savings accounts are coming up as value-added services that are changing crypto by recreating traditional financial structures. Exchanges, as the primary on-ramp to crypto, can dominate this game if they play their cards right.
Crypto exchanges have mostly been limited to generic activities like trading and providing margin lending/borrowing services. A shift to new paradigms provides these entities with the opportunity to cement themselves as the most important layer of institutions in crypto.
Imagine if Binance had a tax management service that charged users a fee and then consolidated their trading history and presented a tax bill. Of course, this would be limited to a few countries at first, but it would enhance loyalty and incentivize traders to stick to exchanges that offer these services.
At the same time, if something like the DAI Savings Rate offered by MakerDAO was accessible through Binance, people with large trading stacks would adopt DAI instead of USDT to earn a yield on their stablecoins while they sit out of the market.
Exchanges have a goliath opportunity in front of them. By integrating value-added services, they can legitimately challenge the entire financial industry by becoming the crypto equivalent of a “too-big-to-fail” institution.
While the scale of their growth is limited by the size of the cryptocurrency industry, this can actually be considered a boon rather than a bane, considering the cryptocurrency industry as a whole has a long way to go before growth starts to stagnate or decline.
DEXes are another possible vector that could prove to be detrimental to centralized exchanges. Consider a situation where a trader is faced with a decision to choose either centralized Binance or permissionless Uniswap to conduct a certain trade. If it’s a $100,000-500,000 trade, it would result in them probably choosing Binance. Nine out of ten times, a trader would prefer non-custodial Uniswap.
In order to challenge this paradigm, centralized exchanges need to be able to offer more. Without that, if their entire business model relies solely on their role as a facilitator of exchange, their moat can be easily overcome by DEXes.
There is a lot these exchanges can do, from tax management and savings accounts to providing transfer escrows and more specific financial services. But what sets them apart from their permissionless counterparts is easy integration of code, without major public audits and non-custodial dictates.
Whether exchanges do this or not is yet to be seen, but there are small signs of them taking this path with Binance and Coinbase adding services like staking and savings accounts respectively.