One of the leading cryptocurrency exchanges, Binance released its decentralized exchange this week. While the flagship version of the exchange is centralized, Binance DEX was expected to not interact with a centralized entity and offer its users more control over their assets.
CEO of Binance, Changpeng Zhao, has repeatedly stated that the new exchange will fulfill the mission of the company to build a decentralized future to enable a trustless and transparent financial system.
A decentralized exchange is an exchange market that does not rely on a third-party service to hold the customer’s funds. Instead, trades occur directly between users (peer-to-peer) through an automated process.
Is Binance DEX Fully Decentralized?
With the release of Binance DEX, it is becoming clear that the platform is not fully decentralized, similar to the state of most current decentralized exchanges.
The fine print on the upcoming Binance DEX states that while Binance doesn’t have access to the private keys to user funds, these assets can still be confiscated.
The terms and conditions explain what actions are prohibited on the DEX, followed by a statement that Binance has the right to confiscate any cryptocurrencies obtained or used in the outlined scenarios.
Many will say this invalidates any claim of being a decentralized exchange — and they wouldn’t be wrong. Once there is an overlap with a central authority’s decision making, the system isn’t fully decentralized anymore.
Binance User: Hey @cz_binance, on your decentralized exchange, it says you don't have access to our coins, but then at the bottom, it says u can seize our coins if u see fit. Which is it?@cz_binance: Yes pic.twitter.com/BGah4WyFlK
— SHILL GATES (@ImShillGates) April 24, 2019
The decision may have been fueled by a reluctance to expose the exchange to regulatory risks. There have been previous instances where law enforcement agencies have influenced the activity of decentralized exchanges, as was the cases of EtherDelta and IDEX.
Restrictions and Interventions
The main concern for users of Binance DEX will be surrounding how decentralized the new exchange really is. While the wording appears to be targeting users who attempt to scam others or sell stolen cryptocurrencies, the risk to start seizing funds for other reasons remains a possibility. Ultimately, Binance can do this at its own discretion without sharing it openly.
According to the terms and conditions of use,
“Binance may, at its sole and absolute discretion, seize and hand over your property to law enforcement or other authorities where circumstances warrant.”
This is a slippery slope, wherein under the pretense of protecting users from nefarious actors, the company can start intervening on behalf of third parties for its own benefit.
What do you think of the new Binance DEX? Is this a sensible decision by Binance to implement a centralized component in its system? Share your thoughts with us in the comments below!
Image courtesy of Shutterstock, Twitter.