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Comment by smaryjerry | Hacker News Reader

Centralized exchanges are a necessity. Who can you trust to trade into and out of fiat? Who can you trust to make a exchange? Who can you trust to use security that works with your wallet? Sure there are decentralized exchanges but how much does anyone trust those, and how decentralized are they really? What happens if those go down? Hell most people don’t buy their own crypto just because they don’t trust random websites that claim to have secure wallets let alone that if they make a non-reversible transaction that the other party will come through. There needs to be an enforcer, most likely a government, that adds threats if someone breaks any of the trust above. There needs to be a centralized exchange to facilitate all these activities. It isn’t forced but anything else is just not as practical, so the majority of people won’t do it outside of an exchange.

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I don't think you have an understanding of how Ethereum or DeFi works. What you are saying makes no sense except for one point (see below). The whole purpose of DeFi and chains like Ethereum is that you don't need to trust decentralized exchanges or apps on top of Ethereum. The system is trustless. These exchanges don't have any control over your assets. They can't "go down" or disappear with your assets because they don't have access to them in the first place. There also is no counterparty risk and wallet security is a totally different thing that's unrelated to any application.

I looked at your comment history and you vehemently argue against DeFi but your posts show that you have little understanding of any technology behind it.

Where you ARE right is that centralized exchanges/entities are needed as a fiat on-ramp and off-ramp. There is no way to get around interacting with centralized governments if you want to use government-issued fiat currency.

I’m not even talking about defi here. Let’s say I just want to trade ETH into BTC or some random coin. I need to trust some website to get that done and be the decentralized exchange. Sure 1000s if websites claim to be decentralized exchanges but how as a user are you supposed to know they are working as they describe themselves? Simply you can’t without an insane amount of digging, so you have to trust a centralized exchange that is regulated by the government. Otherwise if the exchanges cheat you, steal from you, freeze your coins, go under, you just have zero recourse.

> I need to trust some website to get that done and be the decentralized exchange

You don't. You don't need to interact with any websites to make transactions. It's on-chain. You can always run a (light, non-archival) node to ensure the transaction does exactly what you expect it to (before submitting it) do without ever going to a website.

You're right that if you trust absolutely nobody, not even chain explorers, you need to put in more work, do some digging and understand how the system works. You're exchanging usability for security/trust. The point is that you have the option to do that. If you are paranoid and don't trust centralized entities you don't have to. Decentralized exchanges can't cheat you, steal from you, freeze your coins, or go under. It's technically impossible because they don't have custody of your coins at all.

I’m taking about working between chains, not staying on a chain or other cryptos built on the same chain. Someone is building a decentralized exchange, the interaction or adding the next new crypto currency to that exchange and choosing how it is setting the price of the exchange or possibly relaying on other centralized exchanges - typically to set the exchange rate you would rely on the bid ask spread, but if it doesn’t look at other exchanges someone can just buy from one exchange where it’s cheaper and sell on the other. Have you seen office space? The movie where they make the program steel fractions of a penny in each transaction? This is doable in the setting of the prices and fees and the way rewards are set for liquidity, benefiting the person who created them - so who knows how these places work, no one except programmers, and maybe they gain trust over time from others that never had a problem with them before. But when something does goes wrong, who will foot the bill and be held accountable. That’s why centralized exchanges are a must because if something goes wrong you call the police.

Decentralized exchanges don't use an order book, they are Automatic Market Makers (AMM's) that use a bonding curve instead. They don't rely on centralized exchanges at all.

There is a lot of arbitragers on all chains equalizing prices between them all. What you've described with office space is known as MEV in the DeFi world.

All the exchanges are completely open source, you can learn how they work if you put the time into it. I recommend the Balancer whitepaper.

If you can figure out how they can go wrong feel free to explain. But it seems you don't actually understand them yet and are just making assumptions.

Your belief that we need centralized exchanges is just an opinion, and it's wrong, which you'll discover as you dive deeper into seeing how they work.

You can repeat these claims all you want but ultimately we're going to just find out if this is true. It seems to me more likely its not true. At least, that a hypothetical future with minimal centralized exchange activity is also one where crypto is one of if not the predominant forms of held capital.

The whole point of cryptocurrencies was to use them for everything without converting to fiat currency. There should be no need to trade into or out of fiat in the first place. Everything that's wrong with cryptocurrencies today can be traced back to exchanges showing up.

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