Authors: Chi Anh and Ryan Yoon
Translated by: TechFlow
This report written by Tiger Research analyzes why major centralized exchanges (CEX) like Bybit, Binance, and Coinbase are entering the DeFi field and their strategies.
Summary
Strategic Differentiation: Binance offers retail-centered on-chain services aimed at lowering Web3's entry barriers. Bybit launched an independent platform ByReal to provide CEX-level liquidity on-chain. Coinbase adopts a dual-track mode targeting retail and institutional users.
Why CEX Turns to On-chain: As early tokens are increasingly launched on decentralized exchanges (DEX), centralized exchanges face listing delays due to regulatory reviews - losing trading volume and revenue. On-chain services enable them to participate in early token liquidity and retain users without formal listing.
Future of CeDeFi: Platform boundaries are blurring. Exchange tokens are evolving from fee discount tools to core assets connecting centralized and decentralized ecosystems. Some DeFi protocols might be absorbed into larger CEX-dominated networks, accelerating the formation of an integrated hybrid market.
[The rest of the translation continues in the same manner, maintaining the structure and translating all text while preserving technical terms and names as specified.]This delay brings real opportunity costs. Trading volume flows to decentralized platforms like Uniswap, and CEXs lose listing fee income. More importantly, users begin to associate token discovery and innovation with DEXs rather than CEXs.
By launching their own on-chain products, CEXs created a compromise solution. Platforms like ByReal and Binance Alpha serve as semi-sandboxed spaces: tokens can be traded without going through formal listing channels, but still remain in a controlled and brand-safe environment. This allows exchanges to monetize user activities through exchange fees or token issuance mechanisms while maintaining legal distance. Exchanges provide access channels without directly hosting or endorsing these assets.
This structure provides CEXs with a pathway to participate in token discovery while avoiding triggering regulatory responsibilities. They can capture liquidity, create revenue, and guide activities back to their own ecosystem—while waiting for formal listing review processes to catch up.
3.2 Keeping Users On-Chain and Preventing Churn
The second driving factor stems from user behavior. Although DeFi leads in token innovation and capital efficiency, mainstream users still find it difficult to access easily. Most users are reluctant to manually cross-chain transfer assets, manage wallets, approve smart contracts, or pay unpredictable gas fees. Despite these barriers, the most attractive opportunities (such as new token trading listings and yield strategies) are increasingly happening on-chain.
CEXs have identified this gap and responded by directly embedding DeFi access into their platforms. All CEX integrations mentioned above allow users to interact with on-chain liquidity through familiar CEX interfaces. In many cases, exchanges completely abstract wallet management and gas costs, enabling users to access DeFi as easily as using a Web2 application.
This approach achieves two goals. First, it prevents user churn. Traders who might have turned to DEXs can now remain within the CEX ecosystem even when using DeFi products. Second, it enhances platform defensibility. By controlling the access layer and gradually mastering the liquidity layer, CEXs are building network effects beyond spot trading.
Over time, this approach will convert into a platform's user lock-in effect. As users become more sophisticated, many will seek cross-chain routing, yield products, and trading strategies. If CEXs have their own DEX infrastructure, Launchpad layer, or even a dedicated chain (like Coinbase's Base), they can ensure users, developers, and liquidity remain firmly bound within their ecosystem. User activities will be tracked, monetized, and recycled without flowing to third-party protocols.
In fact, on-chain integration enables CEXs to control the complete lifecycle of user funds: from fiat deposit, to DeFi exploration, to final token listing and exit—all completed within a unified and revenue-generating system.
4. The Future Path of CeDeFi
Large centralized exchanges (CEXs) expanding on-chain marks a crucial inflection point in the crypto industry's evolution. CEXs no longer view DeFi as an external phenomenon but are beginning to build their own infrastructure or at least ensure direct user-layer entry points.
4.1 Blurring Boundaries: The Rise of a New Trading Paradigm
As CEXs integrate on-chain services, the boundaries between "exchanges" and "protocols" become increasingly blurred from the user's perspective. A user trading on-chain tokens via Bybit might not even realize whether they're interacting with a decentralized protocol or a centralized interface. This fusion could significantly reshape the industry's liquidity architecture, product design, and user processes.
Institutional behavior will also be a key observation point, but comprehensive capital inflow is unlikely to occur in the short term. Institutions remain cautious, primarily due to unresolved risks: regulatory uncertainty, smart contract vulnerabilities, token price manipulation, and opaque governance mechanisms.
Exchanges launching on-chain services cannot eliminate these structural risks. In fact, some institutions might view exchange-mediated DeFi access as a new intermediary risk layer. Realistically, early attempts will likely come from hedge funds and proprietary trading firms that will deploy small-scale capital for experimentation. More conservative participants like pension funds or insurance companies are expected to remain on the sidelines in the coming years. Even if they participate, they will likely adopt extremely cautious allocation methods—typically not exceeding 1-3% of their investment portfolio.
In this context, predictions about "billions of dollars in capital inflow" seem overly optimistic. A more realistic prospect is gradual testing in the hundreds of millions. However, even these modest capital flows might somewhat enhance market depth and mitigate volatility.
4.2 The Evolving Role of Exchange Tokens
As exchanges continue to expand their on-chain services, the functionality of native exchange tokens will also evolve. Holding a certain amount of these tokens might provide users with on-chain fee discounts or unlock yield opportunities through staking and liquidity incentives. These changes could introduce new utility for exchange tokens while also bringing new volatility.
Currently, Binance is the only major platform providing clear and continuous utility for its native token (BNB), which plays an active role across multiple services. Most other exchange tokens remain limited to basic fee discounts.
As CeDeFi infrastructure matures, this situation will change. When exchanges operate integrated on-chain and off-chain platforms, their native tokens will become the connective tissue between these domains. Users might need to hold exchange tokens to participate in staking, Launchpools, or gain priority early access to newly listed projects—whether centralized or decentralized.
This functional expansion elevates exchange tokens beyond mere utility assets; they will become core assets in vertically integrated ecosystems. Exchanges with existing tokens might significantly enhance their token's utility, while those without tokens might consider launching new ones to support DeFi-related services. This possibility is especially high for platforms developing their own blockchain or differentiated DeFi layers.
In short, exchange tokens are evolving from simple fee tools into strategic assets that will play crucial roles in user retention, protocol integration, and cross-platform capital flow.
4.3 Ongoing Fusion: A New Competitive Landscape
CEXs' expansion of on-chain services is not merely a defensive strategy but represents an active bet on the future of the crypto ecosystem. Exchanges no longer view DeFi as a threat but as an adjacent domain that can be integrated or even absorbed.
The most likely scenario is fusion. Major exchanges will increasingly operate semi-decentralized networks, and independent DeFi protocols might find themselves dependent on these growing ecosystems or even integrated within them. This could ultimately lead to a reallocation of power and liquidity, with CEX-dominated platforms becoming gravitational centers of DeFi activity.
This trend might create a more unified market structure that enables free liquidity flow between centralized and decentralized environments. Users will be able to choose combinations of trust, transparency, and convenience based on their preferences. The competitive landscape is changing, and Bybit's launch of ByReal might be an early signal of this hybrid future taking shape.
