how exactly are exchanges gatekeepers? blockchains would function completely fine without exchanges. In fact, on chain exchanges like uniswap and 0x require zero trust whatsoever.
I must be misunderstanding, but don't blockchains track references, through sequences of indirection (i.e., encrypted on the chain), to what is ultimately fiat currency?
Who determines how much your crypto is worth?
Does uniswap do this? No, not on their own. They can't --- their daily trading volume is too small. They are literally forced to follow the "marketplace".
The 800lb gorillas that make up the crypto "marketplace" are the centralized exchanges --- Binance and others. They set the price using whatever method they choose. And they can easily influence the price by buying and selling themselves. Binance has access to unlimited funds to do so --- by simply minting more Tethers --- which they have done repeatedly --- and the price remains pegged at $1USD (wink, wink, nod, nod).
With unlimited funds, effective control over the pricing mechanism and no regulation --- the centralized exchanges have all the ingredients for the ultimate form of insider trading fraud.
If you trade crypto as it exists today, you are *trusting* the centralized exchanges who have overwhelming influence over the "marketplace". You have no other option.
Sure, pick any exchange you want and I'll bet you a BTC that the price of USDT is effectively $1 USD.
USDT remains pegged at $1 USD regardless of how many new Tethers are minted. Have you ever thought about why or how this happens? Once you do, your *trust* in the crypto exchanges/marketplace will start to unravel.
Would I hold funds in USDT myself? No, I learned my lesson after losing 50k with Liberty Reserve.
And you know this how? Trust?
Be honest. If the people running things used all the funds to buy a private island in the South Pacific, you wouldn't have any way to know.
This is like saying, who gives a shit if the NYSE is minting and selling stocks? Anyone with an IRA or a 401K should.
Who gives a shit if Liberty Reserve was a money laundering operation? Maybe you should have.
More than half of all crypto trades involve tether. The market prices of most crypto is being influenced by it whether you use it personally or not. If/when the price of Tether crumbles, most crypto will have no choice but to follow.
https://www.forbes.com/sites/francescoppola/2019/03/14/tethe...
The operating model of a centralized exchange is that they get paid to both provide and consume liquidity, so much of the volume is their own. On Uniswap, there is no privileged entity, so everybody pays to consume liquidity. This is a huge damper on volumes.
Note that there are MEV forks that also massively increase the Uniswap volume too, but they have to pay at least the trade fee on both sides of a sandwich.
The uniswap "algorithm" has no other choice but to follow the "market". Otherwise, it would do no trades.
Binance's trading volume is 40-50 times that of uniswap. What Binance does affects the price on uniswap --- way more than the other way around.
If Binance mints USDT and uses it to buy lots of BTC, what happens to the price of BTC on uniswap? Once the price on uniswap and other exchanges starts going up, others see it and jump in to avoid getting left behind --- driving it even higher. What happens when Binance then sells BTC?
This is a classic "pump and dump". It happens all the time because there is nothing to stop it. Binance is the one controlling "the market". Uniswap with their "algorithm " just plays along.
Algorithm or not, they are just a little fish that can't possibly do very much to alter the direction of a marketplace whale they don't control.
The only way for this concept to have any real overall significance is if they establish their own separate crypto and be the only "market maker" for it. But then this is "centralization" all over again.
As with other things - the people who want or don't want to buy it.
What happens if they also also get to see your order before it is executed and have every opportunity to insert their own in front of yours just to drive up the price that you pay (aka "front running")?
That's the situation we are in with fiat currency. That's what central banks do.
The question remains, who are you gonna trust?
That's what central banks do, and a lot of cryptocurrencies. It's very very hard to do though with Bitcoin.
Yes, so crypto is just like fiat but without regulations or safe guards or insurance.
It's very very hard to do though with Bitcoin.
It's hard to manipulate the quantity of bitcoin --- not so hard to manipulate the price of bitcoin.
That's why I'm not a fan of crypto in general, only of Bitcoin
> It's hard to manipulate the quantity of bitcoin --- not so hard to manipulate the price of bitcoin.
True, but I guess it's easy to do that with every small market. I'd imagine the bigger the market capitalization, number of participants the harder it would be to manipulate the price.
It's pretty easy when you can mint Tethers and keep the price pegged at $1 USD no matter how many you print and use them to buy/inflate the price of bitcoin.
Yes and anyone can easily make money just like Bitcoin --- just clone it.
How many Bitcoin clones and forks are being used in the crypto-market right now?
Too many to easily keep inventory in your head.