Coinbase CEO Brian Armstrong | TechCrunch/”Brian Armstrong – TechCrunch Disrupt 2018 02” (CC license)
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Crypto centralized exchanges have been rapidly moving their businesses onchain of late.
And to get there, they’re all leveraging their biggest trump card: distribution.
Case study number one.
Bybit announced Byreal on Sunday, a DEX on Solana that is set to launch later this year. Along with the DEX is also a yield product (Revive Vault) and a token launchpad (Reset Launch).
Byreal will route liquidity from its CEX through a hybrid RFQ (request for quote) + CLMM (concentrated liquidity market maker) model, so onchain users can trade onchain with a CEX’s liquidity depth.
My guess is Bybit users will also be able to access Byreal from the main CEX app.
Case study number two.
Coinbase announced a few days later the direct integration of Base DEXs onto its exchange business, set to roll out this week. DEXs from other chains will also be integrated eventually.
This opens up gas-less trading access to thousands of altcoins for millions of Coinbase users (though they will still pay the usual CEX trading fee).
It’s a significant tailwind for DEXs on Base, namely its largest one: Aerodrome. The AERO token — which accrues revenues from DEX trading fees — has pumped 52% in price since the announcement.
This isn’t Coinbase’s first attempt to push onchain with its distributional advantage. cbBTC, its wrapped bitcoin product was bootstrapped using Coinbase as the main distribution rail.
By integrating Base’s lending markets under the hood, cbBTC holders on Coinbase could easily borrow USDC against their bitcoin collateral without leaving the Coinbase app.
Case study number three.
Binance and its extremely complicated Alpha campaign, which has been running since May.
Within Alpha are dozens of “trading competitions” that reward users with “Alpha Points” to trade selected assets, which will in turn entitle you to airdrops. Yet, calling it a competition is misleading — most of these points are handed out based on trading volumes, not P&L criteria.
That’s puzzling until you realize there is a double-pronged strategy at play here.
The first prong is to drive Binance Wallet adoption. Alpha points are eligible only if one trades using its keyless Binance Wallet. This has enabled Binance to absolutely dominate crypto “wallet market share,” as seen below.
There are two caveats here. For one, the activity isn’t organic.
Second, these aren’t “Binance Wallet” users so much as they are simply “Binance CEX” users.
Traders still pay the Binance CEX trading fee, so the revenue capture is different from that of a MetaMask user paying a fee for using its in-app trading features. Calling it “wallet market share” is probably misleading.
Still, it has allowed Binance to drive adoption for its wallet and potentially funnel users onchain on a piece of infrastructure that they own, which they can monetize later.
The second prong of the strategy behind Binance Alpha is to bolster its own onchain ecosystem on BNB Chain.
Powering the trading of these Alpha tokens under the hood is PancakeSwap, which has exploded in volumes since Alpha kicked off in May.
Source: Blockworks Research
These different strategies convey a clear sign: the onchain economy has come a long way from just a few years ago.
DeFi is now mature and secure enough that centralized entities, which must adhere to regulatory requirements, can confidently integrate DeFi infrastructure into their own compliant technology stacks.
