AUSTIN (Texas) — Centralized exchanges have been instrumental in promoting early adoption of cryptocurrency by the public, but some have recently failed. Panelists at CoinDesk’s Consensus2023 conference said that decentralized exchanges will be the future backbone for financial systems.

The complexity of technology has been the main barrier to mass adoption by users. It is for this reason that centralized exchanges like Coinbase (COIN), have provided an on-ramp to many who are interested in digital assets.

If my grandparents wanted bitcoin, would they download MetaMask and figure out how to keep their keys? Nathan Cha, the marketing lead for crypto derivatives exchange dYdX said during the panel that “probably not”.

Read more: DeFi vs. CeFi in Crypto

The lack of transparency of a CeFi-based exchange led to the failures, such as the spectacular fall of FTX last November. Sidney Powell of Maple Finance, the CEO of cryptocurrency lender Maple Finance said that when a customer uses an exchange, money is sent into a wallet, but that everything is controlled by a company that’s not transparent and doesn’t use blockchain infrastructure.

Powell stated that “it was effectively a private ledger”. Decentralized finance (DeFi), on the other hand, is transparent in the way money is stored and transferred. “When you compare that to DeFi lending you can always see the money moving, and you’re always in control using Solidity, and smart contracts,” said he.

“The core [difference] between CeFi and DeFi is… self-custody. Powell added that smart contracts, a blockchain and the actual operation of the business are the key differences from a technological perspective.

CeFi is likely to be the primary avenue for older users and traditional finance customers in the near future, according to Mr. He.

Will DeFi emerge from the Crypto Winter stronger?

Salman Banaei of Uniswap Labs, who is a panelist, stated that the current regulatory framework in the financial markets integrates well with CeFi. He said that CeFi’s business model with its clear control people is reflected by the current regulatory infrastructure. CeFi can now easily adapt to securities, commodities or banking laws.

Banaei said that DeFi has an advantage in this regard because it relies upon an open-source protocol which reduces the “control surface” from a regulatory perspective.

He said that this would change over time. Banaei stated that CeFi’s role will not change dramatically over time, but DeFi is likely to become the primary infrastructure of the future financial system.

Banaei said that “DeFi will eventually become the backbone of a new economy while CeFi continues to be the on-ramp into this richer DeFi environment.”

Read more: FTX showed the problems of centralized finance and proved the need for DeFi

Jeanhee Kim is the editor.