Binance DEX is not really decentralized. – Oscar Guindzberg –

Binance DEX is not really decentralized. – Oscar Guindzberg –

I just had a look at Binance DEX docs.

How it works

The core of the DEX is a new blockchain called BinanceChain, that is built on top of Tendermint. Binance is moving BNB tokens from Ethereum to the BinanceChain. I assume BNB tokens will be used to manage consensus via Proof of Stake.

New tokens could be issued on BinanceChain. Similar to bitocoin’s Omni layer or ethereum’s ERC20, but as a native feature of the chain.

Trading on Binance DEX will be done by sending Order transactions to BinanceChain.

Tokens/Coins that were not issued to BinanceChain won’t be tradeable on Binance DEX. That excludes from Binance DEX every single token and coin that was created already (BTC, ETH, DAI, USDT, you name it).

I guess Binance will encourage new ICOs to create tokens on BinanceChain instead of using Ethereum’s ERC20.

The prblem

It is a hard sell for users to move to an exchange that doesn’t support the most popular token/coins. So, Binance is creating BinanceChain’s version of them. For instance, BTC.B will be BinanceChain’s BTC. Binance promise is 1 BTC.B is worth 1 BTC.

As explained on the docs the (not-yet-available) ways of converting BTC.B back to BTC will be:

1. Atomic Swap between BTC.B and BTC (it’s trustless, but it doesn’t help to make 1 BTC.B worth 1 BTC).
2. Use binance.com. If I have to trust Binance (the company) that they will give me 1 BTC for each BTC.B, that they won’t be hacked, that they BTC holdings won’t be stolen and do KYC, I see no real benefit on using the DEX compared to using the centralized Binance. There are lots of drawbacks and delays using a DEX and no-trust is the only benefit. If trust is still required, there is no point to the DEX.

Potential solution

A solution would be to create a fully decentralized bridge between BTC.B and BTC, similar to RSK or the Dogecoin-Ethereum bridge.

Tendermint is the basic layer of Cosmos, a system to create a network of interconnected blockchains. To connect to other blockchains Cosmos-IBC has to be used, but IBC just allows you to connect to other Tendermint blockchains. To connect to non-Tendermint blockchains a PegZone (i.e. an intermediate blockchain) has to be created. There is only one PegZone in development (Peggy) that will allow to move ETH and ERC20 tokens to/from Ethereum. There is no work on a BTC nor any other blockchain peg zone.

Conclusions

Until a fully decentralize mechanism is implemented to bridge BinanceChain with other blockchains, Binance DEX will be useful just to trade new tokens issued on BinanceChain.

Published at Wed, 17 Apr 2019 22:35:54 +0000