Opinion by: Ido Ben Natan, co-founder and CEO of Blockaid
For years, centralized exchanges (CEXs) have dictated the tradable landscape for cryptocurrencies. Tokens that weren’t featured on key exchanges were largely ignored by the majority of users. While this approach was effective during the early days of crypto, it has now become fundamentally flawed.
With the emergence of Solana-based memecoins, the popularity of initiatives like Pump.fun, and advancements in AI-generated token creation, millions of new tokens are being introduced monthly. However, exchanges have struggled to keep pace with this rapid development. As Coinbase CEO Brian Armstrong recently highlighted, it’s time for exchanges to transition from an allowlist framework to a blocklist strategy, where every token can be traded unless identified as fraudulent.
The limitations of the current model
CEXs were designed to provide a sense of security and familiarity by mirroring traditional stock markets, where each token had to undergo rigorous vetting prior to listing. While this system aimed to safeguard users and satisfy regulatory requirements, it fails to align with the fast-paced nature of crypto.
In contrast to stocks, which can take months to secure approvals, tokens can be created instantly. A prime example is the TRUMP coin, which saw a substantial increase in value upon its launch but had already peaked by the time it became available on major CEXs.
For exchanges, this represents more than just an operational hiccup; it is a critical issue for survival. The foundational principles they were built upon no longer resonate with the current crypto ecosystem. To remain relevant, these platforms must undergo a significant transformation.
Embracing decentralized exchanges
Rather than resisting the shift to decentralized exchanges (DEXs), CEXs should harness the open trading environment that DEXs offer while incorporating the beneficial aspects of centralized systems. Users desire the ability to trade without being constrained by formal listings. The most effective CEXs will ultimately eliminate the need for listings altogether, as future trading models prioritize open access.
Addressing security challenges
The initial step towards this more inclusive model for CEXs involves transitioning from an allowlist to a blocklist approach. In this framework, exchanges would only prohibit trading for assets identified as scams or malicious. While this shift enhances trading fluidity, it raises substantial security and compliance hurdles that need to be addressed. Regulatory bodies will expect CEXs to adhere to stricter compliance measures than DEXs.
The path forward
The current operational methods of CEXs are not sustainable for the future. A manual approval mechanism for token listings cannot scale effectively, especially as DEXs gain traction. The rational progression now is towards a blocklist model, defaulting to allow all tokens to be tradable unless flagged otherwise. To thrive, CEXs need to use real-time threat detection and automate compliance checks.
The exchanges that successfully navigate this transition, embedding security within an open-access framework, are poised to lead the next wave of crypto innovation. Conversely, those that fail to adapt will continue to struggle against DEXs using an outdated system.
Opinion by: Ido Ben Natan, co-founder and CEO of Blockaid.
This article serves general informational purposes and should not be viewed as legal or investment advice. The opinions expressed herein are solely those of the author and do not necessarily represent the views of Cointelegraph.
