Reference article: (Gaming Tokens Dilemma: DEX or CEX?) (PvP)
读编：Zen，PANews
Recently, there has been more and more discussion about whether gaming projects should be listed on decentralized exchanges (DEX) or centralized exchanges (CEX).
Nowadays, CEX listing requirements are becoming more and more demanding and expensive. Even though a number of CEXs claim that stricter requirements will help screen out high-quality projects, the increased difficulty of listing has ironically forced the project's roadmap to distort and focus on the token generation event (TGE). Therefore, the model of listing on DEX and letting the market determine the pricing and allocation of supply has begun to receive more support and gain more and more attention.
Problems with listing on CEX
Perhaps the woes of all utility tokens begin with listing on an exchange.
CEX provides a more user-friendly interface and a more convenient operation process, so its user base is much higher than DEX. According to The Block data, the ratio of spot trading volume between the two has been close to 9 to 1 for nearly a year. Therefore, project parties are keen to list on CEX to create better liquidity for tokens, especially when listed on top CEX. The fully diluted valuation (FDV) of the token is guaranteed, and the valuation of the project can be adjusted artificially.
Arthur Hayes, co-founder of BitMEX, believes that for most projects, they fail to create products or services worthy of users to justify their extremely high FDV. Therefore, the anchoring effect generated by over-increasing FDV allows investment institutions (VCs) and CEXs to always make profits. That is, even if the tokens of inferior projects are sold in large quantities and cause the price to plummet, their book valuations are still much higher than the actual value paid by VCs; and the higher the FDV, the more income and fees CEX earns, and it can obtain a large number of unallocated tokens.
With a few exceptions, most projects need to set aside 10% to 20% of their tokens to qualify for listing on CEX, and existing projects will need to spend hundreds of thousands of dollars to list on other exchanges to ensure trading after the TGE. The main purpose of many people buying tokens on exchanges is short-term speculation. They don't care about the game itself or the actual use of the tokens, but make short-term profits through buying and selling. This is devastating for the sustainability of game projects. A large number of tokens that flow into exchanges are eventually sold off, resulting in a loss of long-term support. In this case, if the trading volume of utility tokens that should be used in the game is concentrated on CEX, no amount of disruptive innovation and utility systems will help.
Token utility is weakened
In Arthur Hayes' view, selling tokens to the exchanges where they are listed is a one-time transaction, while the positive flywheel effect formed by increasing user engagement will continue to bring returns.
In the market, adopting hedging strategies can increase the trading volume of the market and benefit the liquidity of tokens. This is common in margin trading and futures trading. But for utility tokens and P2E game tokens, it has a significant negative impact. Since the hedging strategy allows many people to make money through financial means rather than actually using the token or playing games to earn profits, it weakens the true demand for the token.
There was a very popular game called ACE ARENAS in South Korea. Many people heard that they could make a lot of money playing this game, so they joined in. The increase in demand for its tokens should have driven up its value. However, the price of the tokens did not rise, and the reason was the hedging strategy. Many people were doing hedging or other financial operations instead of directly increasing demand by using tokens, so the price of the tokens did not reflect the market demand for the game.
In addition, users earn income by performing low-risk financial operations on CEX, such as mining or staking, instead of using tokens in games. This behavior does not increase the demand for tokens, but weakens the long-term value of tokens, especially when lending functions are supported on CEX. Lending allows users to lend tokens for profit, which further accelerates the decline in token prices, leading to the so-called "death spiral."
DEX is an option
Arthur Hayes recommends that project owners should only conduct a small private seed round of financing before launching a token in order to create a product for a very limited use case. At this time, since the product is far from achieving true market fit, the FDV should be very low. This sends two main messages to your users: this is a risky game; I hope to create wealth with my users. In addition, considering the current sluggish market conditions, new coins often perform poorly when they are listed. Under pressure, CEX begins to accept only so-called "high-quality" projects as much as possible. It is difficult for a very early project to meet their standards. DEX is an option at this time.
Take Auki Labs, in which Maelstrom, an investment institution founded by Arthur Hayes, as an example. After issuing Auki tokens, the decentralized machine perception network project first listed on Base, Coinbase's Layer-2 solution, on Uniswap V3 through the AUKI/ETH trading pair on August 28. Subsequently, they listed on MEXC for the first time on September 4. They estimated that they saved about $200,000 in listing fees in this way. As of October 10, Auki's token price has nearly doubled compared to the previous private placement price.
X user @louisregis posted on October 4th that he checked the performance of all recent game TGEs, and the best performer was the token $XBG of the player identity protocol XBorg. It chose DEX-centric projects, fully unlocked, no market makers, no manipulation, and transparent. XBORG provided a lot of opportunities for participants in the public sale, and early participants received about 4 to 5 times the return.
Of course, the potential of projects and their tokens listed on top CEXs is still generally highly evaluated. However, the current economic model of game tokens does need to be changed, especially the current unlocking model, which is very unfavorable to the game token ecosystem.
