Centralized Derivatives Exchanges and DeFi Derivatives Exchanges | Tradeoffs

3 min readJul 12, 2020


This post is mainly to list the tradeoffs while trading on DeFi derivatives exchange compared to a centralized derivatives exchange, however I will add few observations in general about most of the DeFi projects.

How decentralized are the DeFi derivatives exchanges like dYdX or MCDEX?

How decentralized are DeFi projects in general?

How secure are DeFi projects in general?

https://defihacks.com has mentioned few recent incidents and you can find more if you search about specific projects.

These are the risks involved in experimenting with DeFi derivatives exchanges including basic differences like less liquidity, less volume, etc. What are the positives of using a decentralized exchange? If its really decentralized then few users may prefer it for arbitrage opportunities, non custodial so you hold keys, less compliance issues, different market pairs etc.

Famous centralized derivatives exchanges: Bitmex, Okex, Delta, Deribit, Binance, Bybit, FTXetc.

Positives: Better liquidity, More volume, Customer Support, Secure cold storage used by most of these exchanges, Insurance funds etc.

Negatives: KYC issues in some cases, Custodial, Withdrawals only once a day in some exchanges, etc.

Other issues I observed about DeFi projects using Ethereum smart contracts:


Legal issues and how they will be managed in such experimental governance models: https://www.coindesk.com/makerdao-users-sue-stablecoin-issuer-following-black-thursday-losses

Compliance: https://www.theblockcrypto.com/amp/linked/67670/consensys-is-launching-a-defi-focused-compliance-service

Leigh Cuen wrote an article last year to highlight some of the issues and they basically indicate its just few developers and VCs experimenting with things:


Risk of rollback on Ethereum Network:


ETH 2.0 coming from years which will change lot of things if and when its live: https://twitter.com/MartyBent/status/1281585697271484418

EIP 1559: https://github.com/ethereum/EIPs/blob/master/EIPS/eip-1559.md

Gas prices related issues: https://twitter.com/ASvanevik/status/1281275953302380546

Will edit and add more later if I see anything important that I missed.

Conclusion: Decentralized exchanges have tradeoffs and some users will prefer them. Decentralized Bitcoin exchanges like Bisq or peer to peer derivatives using Bitcoin smart contracts can also become better in future: https://blockstream.com/2019/04/19/en-transacting-bitcoin-based-p2p-derivatives/ however I am not sure about the DeFi meme related to Ethereum projects.