Can We Really Trust Decentralised Exchanges?

Let’s take a look back at the Coincheck incident in Tokyo, Japan, on January 29, 2018. A report by Reuters on this devastating event reveals that hackers stole a whopping 58 billion yen (€481,745,221.80) from the Tokyo-based cryptocurrency exchange, Coincheck Inc. This makes the cyberattack on Japan one of the biggest crypto-heists since the very conception of the technology.

But it also raised questions about the security of the emerging market of digital assets, with all signs pointing to the flawed nature of centralised exchanges. But are decentralised ones any better? Can we really trust decentralised exchanges (DEX)?

Monex Group CEO Oki Matsumoto and Coincheck CEO Koichiro Wada at a joint news conference following the incident.

Now, this question is a rather tricky one. First of all, a post on FXCM suggests that Decentralised Exchanges are “trustless” due to the fact that transactions are all made peer-to-peer. By cutting out the middleman, you cut out the risk that centralised exchanges like Coincheck pose to your digital assets.

Going ‘decentralised’ means removing the risk for single-point failure from the equation, as in the case of what happened in Japan. While “trustless” in this case refers to removing the human element from the equation, it isn’t entirely all that trustless.

A WIRED article on maintaining a healthy distrust with blockchain technology details that “trustless,” in the case of DEX, refers to now having to put your trust solely in the technology, and no longer on the exchange platforms. And if you think about it, there’s still plenty that can go wrong.

If your bitcoin wallet gets hacked, for instance, you lose all your money. If you forget your login credentials, you lose all your money. If someone successfully manages to hack into the blockchain of your exchange, you lose all your money.

Here, it’s important to point out that one advantage that centralised exchanges have, in comparison to DEX, is that the company handling the platform is responsible for their clients’ assets and will be accountable for any loss or disaster. So while the middlemen are cut out with DEX, it hardly removes all the risks. Instead of eliminating the danger of injuries, it just changes its form.


Another factor that plays into this conversation is the low liquidity with DEX. Simply put, decentralised exchanges do not generate profits, as the transactions are made peer-to-peer. This is in contrast to centralised exchanges, which you can use to trade crypto in light of market movements at will.

These platforms are also able to make the transactions more user-friendly via quality of life changes such as better user interfaces and a dedicated support team for their clients. Because of the ease of use of centralised exchanges, the DEX user bases are significantly lower. The low user base results in slippage. For the uninitiated, slippage occurs when a trader’s order gets executed at a price lower than what they expected. However, this may soon change.

Just last year, Binance pushed decentralised exchange technology forward by acquiring Trust Wallet. The move was a prelude as the company’s goal is to use Trust Wallet as the default wallet for their upcoming decentralised platform. With big cryptocurrency players dipping their toes in the decentralised exchange technology, the issues with liquidity and low user bases may soon become a thing of the past.

Both centralised and decentralised exchanges come with their respective pros and cons. Thus, users take on risks when undertaking either process and must weigh up their options. But the answer to the question “can we really trust decentralised exchanges?” is yes — just as much as you can trust any other form of exchange.

Exclusively contributed to

Contributed by: JBarrow

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