The Final Frontier of Crypto Decentralization: DEXs and The Liquidity Problem

Recent data published by trader and investor Sylvain Ribes provides compelling evidence that fake volume is a very real issue within the crypto market, stating that major exchanges fake volume "In a laughingly obvious and artificial way."

Ultimately, there are two ways to halt potential exchange manipulation within the current cryptocurrency market model - regulation, or decentralization.

Decentralization offers the promise of a transparent exchange ecosystem completely immune to the manipulation currently damaging the cryptocurrency market.

A decentralized exchange entirely separated from a third party appeals to many blockchain evangelists as the best solution to the centralization issue - but will exchange decentralization be beneficial for the crypto market?

Data within the study reveals that across 30 stock markets in 29 countries, only the Tokyo Stock Exchange relies completely on public order flow for liquidity.

The remaining 29 markets rely on market makers to provide liquidity beyond that supplied by the public.

The practice of liquidity management even extends beyond the exchanges themselves - listed companies are now beginning to purchase market maker services to improve the secondary market liquidity of their listed shares.

Without market makers intentionally creating orders and generating volume on traditional exchanges, many stocks would possess virtually no liquidity.

Many of the centralized cryptocurrency exchanges present in the market today already implement honest, upfront methods of adding liquidity to the market, offering maker/taker fee models that don't charge market makers commission.

DEXs hold the potential to create truly distributed market ecosystems in which participants are incentivized to add liquidity to order books in a transparent, provable manner.