Will atomic swaps beat centralized exchanges?

[Abiky]

Atomic swaps are slowly being adopted in the crypto/Blockchain industry. The integration of SegWit + Lightning Network has made this possible. Besides Bitcoin, altcoins have adopted the LN for their own benefit. This will make cross-chain transfers via atomic swaps seamless. If this new feature turns out to be widely successful, it might challenge centralized exchanges in the future.

Do you think it's possible that atomic swaps will beat centralized exchanges? Or are they too big to fail? Will centralized exchange's dominance be largely reduced because of atomic swaps? Or it won't have an impact whatsoever? Your input will be greatly appreciated. Thank you.

[1715349190]

1715349190

[1715349190]

1715349190

[1715349190]

1715349190

[1715349190]

1715349190

[1715349190]

1715349190

[mk4]

It's technically possible, but it's really going to depend if they could solve the UX problem. It's the same reason why non-custodial exchanges like Bisq isn't gaining that much traction compared to centralized custodial exchanges; it's because centralized custodial exchanges are still far easier to use and far more convenient despite the security and privacy risks.

[TradingBull.io]

It is getting lot of traction lately indeed.
There are still issues regarding market making, liquidity but also transaction times:

When trading on a CEX, transactions/trades are processed virtually (without involving onchain transactions)
Settlement is made in the Exchange centralized database and funds only move for deposits and withdrawals.
Therefore, trading speed is quasi instant.

DEX and Atomic SWAPS usually pass by smart contracts and involve onchain transactions fees and blocktime delays every time.

ETH blocktime is at 10-20 sec (most common chain used by DEX and for swaps so far)
Buyers and sellers both first have to transfer their coins to the contract before receiving opposite side's funds.

Total transaction/trade time: blocktime x2 = up to 40sec

It is too slow for professional traders and institutions, especially when using automated trading algo or High frequency trading tools.
For individuals it is more acceptable, especially regarding side benefits: no KYC and security.

[so98nn]

Do you think it's possible that atomic swaps will beat centralized exchanges? Or are they too big to fail? Will centralized exchange's dominance be largely reduced because of atomic swaps? Or it won't have an impact whatsoever? Your input will be greatly appreciated. Thank you.

I believe centralised exchanges won’t go down easily. The number one reason you have already given and that’s giant nature of the crypto exchanges. They have huge volume and investors who keeps the liquidity at highest volume.

On the other hand swap based exchangers are unpredictable. The other day one of the toke got listed for swap with 1.5k USD liquidity which is high enough considering the project was dead for couple of years.

Suddenly the whole liquidity was diluted to 400 bucks. Now we have to either wait for some liquidator to come along or the project owner themselves need to work it out.

So you see that’s the problem with swap and added advantage of centralised exchanges.

[stompix]

Do you think it's possible that atomic swaps will beat centralized exchanges?

Right now and I am willing to bet that for a long period to come what matters is BTC<> fiat. The rest is people playing, trading, trying to make a profit, and then, as clockwork, trying to cash that profit in their national currency. There is no way for this to be solved other than using a traditional exchange, be it a centralized one or something like bisq.
Until cryptos will be spendable like they are in RL without having to convert them to fiat all these are just dreams, short-lived ones
Again nobody needs DEXs?

[d5000]

For now at least it seems to be a slow adoption process for atomic-swap based exchanges. Some months ago I read that the first LN-based atomic swap exchange SparkSwap closed. This would be surely bad news for a young ecosystem. Atomic DEX (which is not LN-based) also seems not to attract too much attention here.

For the future however I think atomic swaps will gain their ground. They are ideal for those who want to exchange coins between blockchains now and then with low risks and without KYC, so my guess is they will compete with services like Changelly, not so much with exchanges focused on real-time trading - because real-time trading will imo always be better on centralized exchanges, even LN in my opinion will always be much slower.

And there are some cool "advanced" applications which are possible with atomic swaps but are still not really explored, like options (see this proposed protocol from @aliashraf).

It's true what stompix wrote that the fiat<->BTC market is surely still the predominant exchange market, but the USDT market shows that blockchain-based stablecoins allow a "value freeze" often sought by traders, and stablecoins can be (at least in theory) traded via atomic swaps. This would not solve the "cashing out"-problem. But in my opinion, one can already buy enough things directly with BTC in most places. So you have always an alternative to BTC-to-fiat exchanges.

(Note that atomic swaps are different from "one-blockchain-exchanges" like Uniswap or Bancor which only support tokens on one blockchain, mostly on ETH. These have their own set of advantages and disadvantages.)

[davis196]

I'm not familiar about how atomic swaps work,but I don't think that this is a direct collision between this new technology and centralized crypto exchanges.I think that the cryptocurrency exchange platforms will adopt the atomic swaps technology,if they see that the benefits of such implementation are more than the costs and potential risks.
I've heard the term "atomic swaps" 2 or 3 years ago and it seems that not much has been done with this concept and only a handful of blockchain experts are discussing topics about this crypto innovation.

[lixer]

Centralized exchanges will not be "beaten" by anything, not defi, not atomic, not anything else because CEX are there to stay and they have their customers and they make their profits. Could other things grow bigger while CEX stays around the same growth? That could potentially happen but this will not happen because CEX will get worse, or because CEX will lose a lot of customers and volume, they will always be there growing at a steady rate becoming bigger and bigger, only potential here is that another thing could grow even faster to get at the first place without hurting anything with CEX.

If this means "beat" to you, you could consider it happening right now, biggest exchange in USA is coinbase and uniswap once took over in volume already in September.

[Renampun]

it won't because CEX still offers many advantages and is also very popular with traders...
I don't use Atomic but 'swap' is not popular among traders. I'm sure traders agree that the features offered by CEX like Binance are very convenient for traders.

[LeGaulois]

@Abiky

People will continue to consider themselves safer using centralized exchanges, without considering the legislation part.
If people have to report and disclose their trades, this could be a problem. Suppose you have to be audited for taxes in the future, how will you prove the purchases and sales you have made? If you tell them you used a decentralized exchange or you used atomic swap because it's 'wonderful', they'll look at you suspiciously, you won't have any way to prove it, and you might end up being suspected of cheating on taxes.

It will take a decade before it becomes popular and will only be used by nerds. Centralized exchanges have a long way to go, they will undoubtedly lose some market but not that much.
I'm talking in a trading context where people are speculating. If it's for real use, I mean to buy or sell stuff, it won't be the same thing.

@mk4

Have you ever give it a try to Bisq? I guess nope. It's so easy to use the client that even children can use it within minutes. Seriously, you just need to enter your bank details, deposit coins, and click on a button to accept an order.
If Bisq is too difficult then the person shouldn't use the internet completely

[bitbollo]

Centralized exchange offer a GUI more easy to use, a free customer support, an experience more easy for the vast majority of user.
Plus they have marketing, promotion... Mostly of us will adopt any new technology/tool that allow to save fees or pay less during a transaction/exchange.
But this doesn't mean centralized exchange will suffer since it's just a tiny slice of the entire crypto industry.
We have seen something similar with DEX, despite their "success" (like Uniswap) the market share of most Centralized exchange has not changed.

[SamboNZ]

I dont think it will beat centralized exchanges since there is still the underlying issue about regulations "money laundering" but it will certaintly will get some of the market share from those big exchanges.

[stompix]

It's true what stompix wrote that the fiat<->BTC market is surely still the predominant exchange market, but the USDT market shows that blockchain-based stablecoins allow a "value freeze" often sought by traders, and stablecoins can be (at least in theory) traded via atomic swaps. This would not solve the "cashing out"-problem. But in my opinion, one can already buy enough things directly with BTC in most places. So you have always an alternative to BTC-to-fiat exchanges.

There is one thing I want to address and it's the ending or for me the wish on how things out turn..
Let's assume there will be far more places where you can buy with BTC directly, and LN implementation and usage to keep up with the fees will also increase so people would be able to bypass the need to transform into the local currency and that will only be the job of the payment receivers or whatever 3rd party solution they would employ.

Now, if this happens, the need for stable coins might not be affected but, what need would we have for other coins that basically have no real-life purpose and at that point will clearly have no future outside trading either? And this will bring us to the point in which once we have no need for altcoins we have no need for atomic swaps either, isn't it? In this scenario the only ones interested in them being 247 traders which would stick to traditional exchanges for a multitude of reasons.

[cryptoaddictchie]

It won't because CEX still offers many advantages and is also very popular with traders...
I don't use Atomic but 'swap' is not popular among traders. I'm sure traders agree that the features offered by CEX like Binance are very convenient for traders.

Actually depends. Some most atomic swap kind of exchange such as uniswap and others are heavily populated with short term traders in the degen world. So its also becoming popular. Why do you think uniswap beat coinbase in terms of volume last time? Means its growing and in demand to some, its simple and very easy to use. But of course I still like the functionality of cex and its a traditional trading hub for most traders.

[cabron]

Atomic swap is very easy to use and no KYC which is more attractive to people who give importance to privacy.
Traders whoever just want to see the order book to bid for the lowest price. Centralize exchange just allows traders to spread fear too on the chatbox. This is just one of the things you just can't find on Uniswap.

[mk4]

@mk4

Have you ever give it a try to Bisq? I guess nope. It's so easy to use the client that even children can use it within minutes. Seriously, you just need to enter your bank details, deposit coins, and click on a button to accept an order.
If Bisq is too difficult then the person shouldn't use the internet completely

That's really not a good way to look at things. Sure it might be easy for us, but get out of your bubble and think of people in general. The people who barely could use the internet if not through a dumb-friendly app like Facebook and YouTube. I'm not even arguing that Bisq is "hard" to use, what I'm saying that custodial exchanges are still miles easier to use and miles seamless. The fact that exchanges like Bisq only has a small number of users compared to exchanges like Coinbase proves my point.

[bitgolden]

It depends on marketing a bit, defi has been a thing for almost 3 years now without people realizing but last 6 months it has been wildly popular and everyone has been investing billions of dollars into it. Does that mean defi suddenly created something magical? No. It is the same thing it was 3 years ago with some improvements of course but nothing that improved as much as going 10000x in volume, concept is still similar. So why did it went up?

Because of marketing, all the new defi projects went viral and suddenly became hugely known successful projects that made people profits, hence people kept investing to make same type of profits themselves. Atomic swaps could beat CEX very very easily if we could have that type of marketing again and people realize they could pay a lot less for each transaction.

[hulla]

Atomic swap is very easy to use and no KYC which is more attractive to people who give importance to privacy.
Traders whoever just want to see the order book to bid for the lowest price. Centralize exchange just allows traders to spread fear too on the chatbox. This is just one of the things you just can't find on Uniswap.

No doubt atomic have the characteristics you mentioned but for newbies which still don't understand how to prevent a human error if security is a top priority I won't recommend the use Atomic swap and when it comes to using exchange user have to trust the exchange activities so i don't expect atomic swap to beat centralized exchange in that aspect because of it LN integration when it not the first exchange to do that.

[Abiky]

It's technically possible, but it's really going to depend if they could solve the UX problem. It's the same reason why non-custodial exchanges like Bisq isn't gaining that much traction compared to centralized custodial exchanges; it's because centralized custodial exchanges are still far easier to use and far more convenient despite the security and privacy risks.

Exactly. The main issue of atomic swaps is the steep learning curve. Without a user-friendly interface, most people will continue to use centralized exchanges to trade from one coin to another. Once UX is solved, we'll be able to see increased adoption for atomic swaps in the mainstream world. Still, it's unlikely centralized exchanges will be going anywhere. They're too big to fail as they dominate a large portion of the crypto market. Exchanges like Binance, Bitfinex, Huobi, OKEX, and Coinbase are still relevant in the crypto/Blockchain space (despite the emergence of decentralized exchanges and P2P trading platforms). It'll be hard to beat them in the long run due to the "empire" they've built over the years.

In the end, atomic swaps and decentralized exchanges will become a niche as they'll only gather the likes of tech-savvy people in the mainstream world. The rest will continue to use centralized exchanges for day-to-day trades. Don't get me wrong, though. Atomic Swaps are a nifty feature which aim to further decentralize the crypto space. But they have a long way to go before they'll be able to rival (if they ever will) existing solutions. It may be too early to tell what the outcome of atomic swaps may be, as the tech is still in its infancy. We're going to have to wait and see what happens in the future as centralized exchanges continue to become a victim of hacks and theft. People will ultimately decide if they want to keep using centralized exchanges or not. Just my opinion

[BTCappu]

Will that be possible? One thing with decentralized exchanges is that they are not paying attention to their UX design, there is always a lot of work to be done. And centralized exchanges, since they are kind of more organized, they put more attention into what they do and they also try to make their platform more easy for users, there are no difficulties, except that you’re risking your privacy.

Let’s be watching and see whether there is going to be changes in future and decentralized exchanges will get better in most of these areas to be able to offer better services.