In the crypto world, there are two types of finance: CeFi and DeFi

CeFi is centralized finance. Coinbase $COIN is an example of this.

DeFi is decentralized finance. Uniswap, Sushiswap and two popular DeFi platforms

FTX is a CeFi exchange. The entire operation is run by both humans and code. Because humans are involved in the day-to-day operations, FTX isn't considered a DeFi exchange. Also, FTX isn't any different from Robinhood or Charles Schwab except for the fact that it offers users exposure to crypto assets.

In DeFi exchanges, the entire operation is run by code. No humans are involved in the day-to-day operations but in the development of the overall structure. The slim structure of DeFi exchanges allows it to offer lower trading fees than CeFi exchanges.

The thing about CeFi exchanges is that they provide people with fiat currency a way to buy cryptocurrencies. DeFi exchanges don't have that type of capability (yet). Unlike CeFi exchanges, DeFi exchanges never cause people to lose access to their assets.

Sure, assets in DeFi can lose value. But at least you have access to them. Meanwhile, in CeFi exchanges, people experience both portfolio loss and loss of access to their crypto assets.

Going back to CeFi vs DeFi exchanges, CeFi exchanges will lose out from DeFi exchanges because DeFi exchanges have lower transaction fees. This fact alone is why Sam Bankman-Fried (SBF) wanted regulators to impose consumer protections on DeFi exchanges. By having regulators go after DeFi exchanges, this will prevent DeFi from ever overthrowing CeFi firms. I wouldn't be surprised if that fear is why SBF donated so much money to candidates during the 2022 midterm elections.

Regulation isn't an entirely bad thing necessarily for DeFi. One benefit is that it will give institutions more comfort in dabbling with DeFi assets as regulations help establish clarity in the industry. Another benefit is that it helps root out scams and bad actors. As long as these regulations aren't overbearing and aren't made to protect CeFi exchanges, regulations can help DeFi reach mass adoption.

Here's something to keep in mind:

"If there is a silver lining for the FTX fiasco, it is a reminder of the importance of decentralization. While it has taken a sledgehammer to all crypto prices, layer 1 blockchains that de-prioritized decentralization as a design goal has been the hardest hit"

Centralized exchanges take custody of your assets. Decentralized exchanges don't. Many in Web3 know this fact and have chosen to pour more money in DeFi exchanges.

Maybe the blowup of FTX was needed for the entire crypto ecosystem to be healthier. Maybe the blowup of FTX was needed to remind the world of the importance of decentralization.

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