Business Cannibalization, Revenue Pressure, CEX Seizing the Future On-chain

Centralized exchanges are currently undergoing a collective strategic realignment. From Coinbase's nearly $2.9 billion acquisition of the derivatives trading platform Deribit, to its partnership with Shopify to promote USDC adoption among physical merchants. Binance has launched the Alpha program to reshape primary market pricing mechanisms. Kraken has acquired NinjaTrader to expand into the options market and collaborate with Backed to launch "stock" services. Bybit has also opened trading for gold, stocks, forex, and even crude oil indices on its main platform.

Top exchanges are actively expanding their revenue streams, aiming to "diversify" their businesses from on-chain to off-chain, from retail to institutional, from mainstream coins to altcoins. At the same time, these platforms are extending their reach into on-chain ecosystems. For example, Coinbase has integrated Base Chain's DEX routing on its main platform, intending to break down the liquidity barriers between CeFi and DeFi, and reclaim the trading share taken by on-chain protocols like Hyperliquid.

However, behind these actions lies the sustained pressure on exchange platforms' actual revenue-generating capabilities, as cryptocurrency exchanges face unprecedented development bottlenecks. Coinbase's latest financial report shows that its transaction fee revenue has plummeted from $4.7 billion in 2024 to $1.3 billion in Q1 2025, a 19% decrease from the previous quarter. The percentage of BTC and ETH trading volume has decreased from 55% in 2023 to 36%, with revenue increasingly relying on the more volatile world of altcoins. Yet operating costs have not seen a reduction, reaching a staggering $1.3 billion in just the first quarter of 2025, almost on par with revenue. Binance faces a similar challenge of declining transaction fees, with TokenInsight reporting that its average transaction fee revenue from the end of 2024 to the present has hit a three-year low, despite still leading in market share.

Binance's trading volume has mostly been lackluster over the past year, source: coingecko

As transaction fee opportunities shrink, on-chain liquidity continues to divert, and traditional brokerages reshape their compliance strategies, these intertwined forces are driving CEXs to transform into "on-chain platforms." Renowned KOL ASH analyzed on X that as more DEXs enhance their trading mechanisms, producing a user experience almost comparable to CEXs but with greater transaction transparency, CEXs have finally begun to take notice. Several CEXs are shifting their strategic focus to the permissionless model, with many embarking on a "decentralized CEX" market competition.

OKX: Leading Infrastructure Development

In OKX's annual letter on December 30, 2024, OKX founder Star Xu expressed his firm belief that "true decentralization will lead the large-scale adoption of Web3" and is committed to building a bridge connecting traditional finance with decentralized finance.

This statement is not without basis. OKX, apart from Binance, is one of the earliest and most systematic centralized exchanges to lay out blockchain infrastructure. It did not sporadically launch a wallet or feature but constructed a "full-stack development" to build a Web3 operating system that can replace the centralized scenario and integrate it with CEX user assets forming a closed loop.

Over the past two years, OKX has consistently advanced its strategic development of on-chain infrastructure, attempting to transform from a centralized exchange to a core participant of the Web3 operating system. One of its focuses is the OKX Wallet (supporting over 70 public chains, a non-custodial wallet) which has integrated functions such as Swap, NFT, DApp browser, inscription tool, cross-chain bridge, and yield vault in the Web3 section.

The OKX Wallet is not a standalone product but the core hub of OKX's Web3 strategy. It not only connects users with on-chain assets but also bridges the gap between centralized accounts and on-chain identities. Due to its comprehensive components, many newcomers who joined the industry around 2023 first interacted with the blockchain using the OKX Wallet.

On the other hand, OKX has also made continuous investments in the underlying network and developer ecosystem. It launched OKExChain (later renamed OKTC), an EVM-compatible L1 public chain, as early as 2020. Although this chain did not receive strong market promotion, OKX simultaneously released foundational components such as a block explorer, developer portal, contract deployment tool, and faucet service to encourage developers to build DeFi, GameFi, and NFT applications within its ecosystem.

Through hosting hackathons, initiating an ecosystem support fund, OKX is establishing a self-contained on-chain ecosystem. Although OKX has never publicly disclosed the total investment amount, considering the scale of its wallet, chain, bridge, tools, and incentive system development, the market generally estimates its investment in on-chain infrastructure to exceed $100 million.

Binance Alpha: Monetizing Prestige and Liquidity

In 2024, the crypto market experienced a bull market prosperity driven by the approval of a Bitcoin spot ETF and a meme frenzy. Despite the apparent significant increase in liquidity, behind the prosperity lies the gradual failure of the pricing mechanism between the primary market and the secondary market. Project valuations continued to be inflated during the VC stage, the token issuance cycle was repeatedly extended, and the entry barrier for retail investors kept rising. Furthermore, when tokens finally debuted on trading platforms, it was often only an exit for the project team and early investors, leaving retail investors to face price collapses and high buying pressure right after listing.

It was in such a market environment that Binance launched Binance Alpha on December 17, 2024. What had initially been an experimental feature in the Binance Web3 wallet for exploring high-quality early-stage projects quickly evolved into a key tool for Binance to reshape the on-chain primary market pricing mechanism.

Binance's co-founder, He Yi, once publicly acknowledged the structural issue of "peak price at listing" for projects on Binance in a Twitter Space response to community controversy. He admitted that the traditional listing mechanism was no longer sustainable under today's trading volume and regulatory framework. In the past, Binance had attempted to correct the pricing imbalance post-listing through methods like listing votes and Dutch auctions, but the results were always unsatisfactory.

The launch of Binance Alpha, to some extent, became a strategic alternative within a controllable range to the existing listing system. Since its launch, Alpha has introduced over 190 projects from various chain ecosystems such as BNB Chain, Solana, Base, Sonic, Sui, gradually forming a Binance-led on-chain early project discovery and preheating platform. This has provided an experimental path for trading platforms to regain control of primary pricing rights.

After the introduction of the Alpha Points mechanism, it has become a haven for retail investors to "farm," attracting not only players in the field but also expanding to a broader range of Web2. The attractive returns have motivated many to even rally their entire families, companies, or villages to participate.

Although it has become increasingly popular, there have been cases like the sharp drop in the price of tokens such as ZKJ after listing on Alpha, raising concerns about its "compliance." The community's opinions on it are mixed. Renowned KOL thecryptoskanda highly appreciates Alpha, considering it as Binance's second great activity innovation after Binance IEO. He analyzed its role in the ecosystem, stating, "Binance Alpha's historical mission is to dismantle the primary pricing power of North American VCs such as A16Z, Paradigm, who can almost costlessly raise funds from tradfi, and to reclaim the Binance system. Moreover, it overwhelms the copycat listing market of other exchanges to prevent scenarios similar to Grass appearing on Bybit, leading to hot spots being left out. Simultaneously, it turns the capital immobility of all chains into Binance's capital immobility through BSC. Alpha has effectively achieved these three goals."

Coinbase Connects to DEX, Major Holders Support Base

Following in the footsteps of Binance and OKX, Coinbase has also begun its own integration into the on-chain ecosystem. Their initial strategy is to connect to DEX trading and a verified liquidity pool. At the recent 2025 Cryptocurrency Summit, Coinbase's VP of Product Management, Max Branzburg, announced the integration of Base Chain's DEX into the Coinbase main application, with future applications embedding DEX trading.

Through Base's native routing, users can trade any on-chain token and participate in a KYC-verified liquidity pool, allowing institutions to get involved. Coinbase now has over one billion registered users, with 8 million monthly active trading users. According to Coinbase's investor report, the total customer asset value on their platform is $3.28 trillion.

Retail trading accounts for only about 18% of trading on Coinbase. Starting in 2024, the trading volume of Coinbase's institutional clients began to steadily increase (Q1 2024 trading volume was $256 billion, accounting for 82.05% of total trading volume). With Coinbase integrating the DEX on Base Chain, combining DeFi's reach with TradFi's compliance standards, it should be possible to bring a significant amount of liquidity to tens of thousands of on-chain tokens on Base. Furthermore, many products within the Base ecosystem will have the potential to access Coinbase, a compliant gateway to the real world.

Base's largest native DEX, Aerodrome, has also become a hot topic in recent days. As one of the first trading routes embedded in the Coinbase main site, it has risen by 80% in the past week, increasing its market value by nearly $4 billion.

The community's attitude towards this development is divided into two parts. Well-known KOL thecryptoskanda does not view Coinbase's strategy favorably. When discussing Binance Alpha, he believes that Coinbase is simply imitating Binance Alpha, and allowing App users to buy Base on-chain assets is just scratching the surface. On the other hand, KOL Analyst 0xBeyondLee believes that this is not comparable to Binance Alpha. "Alpha still has an admission mechanism, and not all coins can be listed. Coinbase's rhetoric suggests that all Base assets can appear. It's as absurd as being able to trade shares of a street fruit stall directly on a professional stock trading platform. In terms of liquidity and attention, the gain for Base Chain is unprecedented."

Furthermore, Coinbase's offensive on-chain liquidity does not stop there. Renowned KOL TheSmartApe "the_smart_ape" stated on social media that due to Coinbase's actions, they will begin selling their $Hype holdings from the TGE to date. TheSmartApe further explained that Hyperliquid currently has approximately 10,000 to 20,000 daily active users, with a total user base of around 600,000. Among them, 20,000 to 30,000 core users have contributed nearly $1 billion in revenue, with a significant portion coming from the United States.

However, most American traders use Hyperliquid because they have no better options. They are excluded from Binance and other major CEXs and are unable to engage in perpetual contract trading. But when Coinbase and Robinhood both announced the launch of perpetual futures products in the United States, it will be a huge blow to Hyperliquid. A large portion of its significant core user base may shift to Coinbase or Robinhood. Coinbase, with a more secure and convenient access, no self-custody required, no complicated DeFi UX, and the full support of regulatory bodies like the U.S. Securities and Exchange Commission (SEC), can attract most traders who are not concerned about decentralization as long as it is secure and user-friendly.

Byreal, Bybit's On-chain Doppelgänger

Compared to Binance and OKX, Bybit's actions in the on-chain war are more "restrained," without forking a chain or building a Rollup. They only focus on advancing lightweight initiatives around "user entry," "on-chain trading," and "fair distribution."

First, starting in 2023, Bybit promoted the independence of its Web3 brand and launched the Bybit Web3 wallet, integrating core on-chain functionalities (Swap, NFTs, Inscriptions, GameFi) to guide users into the on-chain world. The wallet integrates DApp browsers, airdrop event pages, cross-chain aggregation trading, and supports both EVM chains and Solana, aiming to be a lightweight bridge for CeFi users to migrate to the on-chain world. However, amidst the escalating competition in the wallet market, the project did not create a buzz.

Bybit has shifted its focus to on-chain trading and issuance platform, launching Byreal deployed on Solana. Byreal's core design concept is to replicate the "matching experience" of centralized exchanges, achieving low slippage trading through an RFQ (Request for Quote) + CLMM (Centralized Liquidity Market Making) hybrid model, and embedding mechanisms such as Fair Launch (Reset Launch) and Revenue Vault (Revive Vault). The testnet is said to launch on June 30th, and the mainnet is scheduled for release in the third quarter of 2025.

Bybit has also launched Mega Drop on its main platform, which has already gone through 4 phases. It adopts a model where tokens of projects are automatically airdropped to users staking in the project. The current estimated earnings are around $50 per phase for staking $5000, but results may vary depending on the project.

Overall, Bybit's strategy in the on-chain war is to "use lower development costs, leverage existing public chain infrastructure," build a bridge connecting CeFi users with DeFi scenarios, and expand its on-chain visibility and issuance capabilities through components like Byreal.

The decentralized derivatives wave sparked by Hyperliquid has evolved from a technological breakthrough into a reshaping of the competitive landscape between trading platforms. The boundaries between CEX and DEX are being blurred, centralized platforms are actively starting to "go on-chain," and on-chain protocols are continuously simulating centralized matching experiences. From Binance Alpha reclaiming the top pricing power, to OKX building Web3 full-stack infrastructure, to Coinbase leveraging compliance to reach the Base ecosystem, and even Bybit establishing its own on-chain identity through Byreal, this "on-chain war" is far more than a technical race, it is a battle for user sovereignty and liquidity dominance.

Ultimately, who will occupy the high ground of the future on-chain finance depends not only on performance, experience, and model innovation but also on who can build the strongest capital flow network and the deepest user trust channel. We may be standing at the watershed of deep integration between CeFi and DeFi, and the winner of the next cycle may not necessarily be the most "decentralized" one, but perhaps the one that best "understands on-chain users."

Hype! Hype! Hype!

In April 2020, dYdX first launched decentralized perpetual contract trading pairs such as BTC-USDC, thus opening the door to derivatives on decentralized trading platforms. After 5 years of market development, the emergence of Hyperliquid has unleashed the potential of this field. Up to now, Hyperliquid has accumulated over $30 trillion in trading volume, with daily trading volume approaching $7 billion.

With the breakout of Hyperliquid, decentralized exchanges have become a force to be reckoned with that centralized exchanges cannot ignore. As the growth of centralized exchanges stagnates and users are drawn to decentralized exchanges led by Hyperliquid, centralized exchanges are urgently seeking the next "growth anchor." Apart from expanding stablecoin or payment-oriented "open source" strategies, the first priority is to regain the on-chain contract users through a "throttling" strategy, from Binance to Coinbase, all major centralized exchanges are integrating their on-chain resources. At the same time, the community's attitude towards blockchain has shifted from being entangled in "decentralization" to most people caring more about "permissionlessness" and "fund security," blurring the boundaries between decentralized and centralized exchanges.

Over the past few years, the idea represented by DEX was once a symbol of rebellion against CEX's power monopoly. However, with the passage of time, DEXs have gradually begun to draw inspiration and even replicate the core technologies of the once "titans." From the trading interface to the matching mechanism, and then to liquidity design and pricing mechanisms, DEXs are reshaping themselves step by step, learning from and even surpassing CEXs.

Now that DEXs have grown to perform various functions of CEXs, even under the suppression of CEXs, the market's enthusiasm for their future development cannot be extinguished. They are now carrying not only "decentralization" but also the transformation of the financial model and the underlying change in the "asset issuance" model.

Meanwhile, CEXs also seem to be fighting back. In addition to developing more business channels, they also attempt to bind the liquidity that originally belonged on-chain to their own system to make up for the declining trading volume and user base being "stolen" by DEXs.

When the market is full of diverse competition, it is the most creative and dynamic. The competition between DEXs and CEXs is the result of the market and "reality" continuously compromising. The "on-chain battle" for liquidity dominance and user attention has far exceeded the technology itself. It is about how exchanges reconstruct their role, capture the needs of the new generation of users, and find a new balance between decentralization and compliance. The boundary between CEXs and DEXs is increasingly blurred, and the future winners are the builders who navigate the optimal path among "experience, security, and permissionlessness."