OKX's Inter-Trading Technique: Left Hand Exchange, Right Hand Web3 Wallet

Author: ChainCatcher

Literally, DeFi and CeFi are completely opposing concepts. The transformation of CeFi by DeFi has been one of the most important narratives in the crypto market. However, a series of recent actions in the industry indicate that the relationship between the two is undergoing many interesting and significant changes.

An obvious trend is that with the popularity of Layer 2, many established DeFi projects are competing to emphasize a CeFi-level user experience. For example, Uniswap's UniswapX focuses on gas-free trading, while Synthetix's Infinex attempts to introduce a new derivatives front end, providing CEX-like functionality to cater to traders who are more accustomed to using CEX. Synthetix founder Kain Warwick even directly proclaimed "Now is the time to compete directly with CEX."

In response to the offensive from DeFi projects, most CeFi projects have adopted a "inclusive" strategy, incorporating decentralized products into their development strategies. For instance, Coinbase recently joined Binance and OKX in launching its own EVM chain, attempting to transform from a competitor in DeFi to the infrastructure of DeFi.

OKX has gone a step further by directly integrating a Web3 wallet into its app, allowing millions of users to quickly and conveniently experience various DeFi products. Recently, it even launched a cutting-edge account abstraction wallet, organically combining CeFi and DeFi at the product level to meet users' one-stop needs and making significant contributions to DeFi market education.

Although centralization and decentralization represent two opposing extremes, each has its advantages and disadvantages. Ultimately, they are both means to achieve the same goal: to provide better financial services. In fact, it is not difficult to find that the breakthrough points at every important development node in the crypto industry's history are precisely the technologies that can better integrate DeFi and CeFi.

I. CeFi and DeFi Each Have Their Advantages

Although CeFi was born earlier than DeFi, the term CeFi only emerged after DeFi became popular. If we define DeFi as financial services centered around digital currencies based on blockchain technology, then strictly speaking, DeFi was born with the advent of Bitcoin, as cryptocurrencies allow individuals to "become their own bank" and truly control their crypto assets.

However, at that time, DeFi's functionality was still very limited, and it was the centralized financial systems represented by OKX that supported and expanded the cryptocurrency market.

With the arrival of DeFi Summer, DeFi applications began to transform traditional finance into a blockchain version, placing exchanges, banks, futures, market makers, and more on-chain through automatically executed smart contracts. Financial use cases on-chain became increasingly rich, and the utilization rate of funds began to rise significantly. The maturity of DEX captured the long-tail market that CEX could not cover, and many centralized exchanges realized the importance of decentralized business. In addition to competition for listing coins, CEXs began to build public chains to seek a more favorable market position.

Thus, as the importance of DeFi in the crypto market continues to rise, CeFi and DeFi began to converge due to overlaps in market participants, liquidity pools, and product user experiences, addressing different issues at various levels.

In the division of labor between the two, CeFi acts more like a lower-level infrastructure for DeFi, providing services such as fiat deposits and withdrawals, and asset custody. Since leading CEXs are mostly regulated by governments, they pose lower risks compared to DeFi, where users need to manage their own keys and frequently face theft incidents. On the other hand, DeFi offers greater freedom and openness compared to CeFi, allowing users to "do their own research" and take responsibility for their own assets.

Compared to DeFi, CeFi has its unique advantages in user experience, handling emergencies, and security guarantees.

Especially in terms of user experience, CeFi is far superior to DeFi. Currently, the vast majority of DeFi applications are not friendly to novice and retail users, with complex and difficult-to-understand product pages, numerous operational steps, and a lack of support when problems arise. In contrast, CeFi products are designed to be more user-friendly, with easier operations and dedicated support personnel available when issues occur.

In terms of asset risk mitigation, assets on CeFi platforms are more secure. For example, anyone can launch a new token on Uniswap by adding liquidity, leading to a proliferation of fake coins and phishing projects on these DEXs. Leading CEX platforms have a comprehensive listing review mechanism that evaluates projects from the perspectives of ecosystem, code, community, and capital, thereby reducing users' own review risks.

When users suffer losses due to technical issues, CeFi often shows more accountability. In the past, when DeFi projects suffered asset losses from hacker attacks, the officials often chose to issue more tokens or create new tokens to compensate, ultimately leaving users to bear the losses. In contrast, during the recent CELT and SUI token incidents, OKX promptly stepped up to take responsibility and provided corresponding compensation measures, with compensation for users affected by CELT exceeding $3 million.

In summary, both CeFi and DeFi have their own advantages. Regardless of the prefix "Ce" or "De," their essence is to provide good service to users. In the future, the symbiotic integration of DeFi and CeFi will bring greater imaginative space to the crypto market.

II. Analyzing the Typical Case of OKX: How to Smoothly Integrate DeFi into CeFi?

From a development strategy perspective, many institutions and projects are currently seeking "organic" integration of DeFi and CeFi.

Currently, the crypto market lacks a strong narrative in the bear market, with the speed of new users and funds declining. However, on-chain ecosystems like DeFi remain active, with the explosion of Bitcoin and Ordinals ecosystems, and the endless hype around meme coins and NFTs, attracting the most active crypto users.

As a result, Coinbase launched the Layer 2 chain Base, attempting to bring real users into DeFi through integration between the exchange, Coinbase Wallet, and Base. Meanwhile, Binance announced the launch of a new Layer 2 network opBNB based on the development of BNB Chain, with CeFi trying to seek new value capture capabilities through DeFi and Web3.

However, compared to other centralized exchanges, OKX may be the only successful case in the integration of DeFi and CeFi. Why is that?

In seeking to bridge on-chain and off-chain, OKX chose a different approach by launching a Web3 wallet to enter the on-chain world. The OKX Web3 wallet is directly embedded within the exchange app, allowing a single platform to connect to both centralized and decentralized worlds.

Compared to the heavy operation and ecosystem focus of public chains later on, wallets represent a "small but mighty" strategy. First, as a simple tool, the Web3 wallet is relatively neutral. Currently, the OKX Web3 wallet has gradually open-sourced all chain signature algorithms, enhancing transparency.

Second, as an entry point to DeFi, the wallet is more lightweight and convenient, with shorter development iteration cycles, making it easier to accumulate users and meet their needs through optimized user experiences. It can also form broader integration with the Web3 ecosystem, filling the long-tail market that exchanges cannot reach, achieving a "steady flow" of traffic in the bear market. Finally, as a non-custodial trading product, the OKX Web3 wallet serves as another natural defense against asset loss.

At the same time, with increasing user demand for self-custody amid regulatory uncertainties, there is indeed a need for a secure and user-friendly product. Currently, there are various Web3 wallets on the market, but few truly deliver a good user experience.

Although centralized products are often co-built by loosely structured communities, strictly adhering to the DeFi world’s "Code is Law" principle, this is not the only golden rule for creating good DeFi products. Open-source code, automatically executed contracts, transparent and verifiable balance sheets, and the capabilities and reputations of development and operations teams are all sources of trust in DeFi.

The construction of the OKX Web3 wallet has its unique advantages. Strong technical and financial support enables the product to provide comprehensive and continuous solutions, with high development efficiency and flexibility, allowing it to quickly adapt to customer needs and provide ongoing support and services.

In terms of the deep integration of DeFi and CeFi, the OKX Web3 wallet has also achieved the following:

1. More Convenient DeFi Interface: Unlike the Web3 wallets of exchanges like Coinbase Wallet and Trust Wallet, the OKX Web3 wallet was not launched as a standalone app and does not have brand isolation; instead, it is directly embedded in the centralized exchange. OKX Chief Innovation Officer Jason Lau explained in an interview that the development of the Web3 wallet must consider decentralization, security, and convenience. From the user's perspective, switching between the Web3 wallet and CeFi is seamless, making operations more convenient. Users do not need to download or log into various DeFi project apps to directly experience liquidity pools, staking, mining, and other products.

This is similar to a bank app integrating various financial products from different companies, allowing users to have a one-stop, smooth financial experience. In fact, DeFi products are beginning to realize that users do not need to interact directly with DeFi; for example, Synthetix founder Kain has mentioned that ordinary users are more likely to use DeFi through mobile wallets rather than through DeFi infrastructure.

2. More User-Friendly Education: Issues like spoofed apps, phishing addresses, and private key leaks leading to wallet theft may be a necessary lesson for many novices entering DeFi. Direct interaction with DeFi applications still carries a high threshold and risk. However, through OKX, users can experience DeFi interactions in advance through various channels when switching to the Web3 wallet page, such as guest mode and zero-fee transactions.

Additionally, in May of this year, OKX launched the Learn to Earn tool Cryptopedia, which incentivizes users to complete DApp interactions through collaborations with popular on-chain ecosystems, offering NFT rewards to stimulate user participation in DeFi and the Web3 ecosystem.

3. More Comprehensive Ecosystem and Complete User Experience: Since the official launch of the OKX Web3 wallet in July 2021, it has supported over 65 chains across six major ecosystems, including EVM, UTXO, Cosmos, Tron, Solana, and Move. During this time, several technological innovations have been achieved, such as the launch of the first 2/3 multi-chain MPC wallet in April this year and the Ordinals market in May, making it the first mobile wallet to support Ordinals trading.

Notably, OKX's deep involvement in the Bitcoin ecosystem is unmatched by other products. The OKX Web3 wallet has supported BRC-20 trading markets, BRC-20 token trading, BTC cross-chain swaps, Ordinals inscriptions, and BRC-20 token minting, and officially launched the BRC20 token staking feature on July 19. Beyond the construction of basic infrastructure like trading tools, the OKX Web3 wallet's support for the Bitcoin ecosystem extends to the protocol standard level, leading the expansion of the BRC-20 protocol's version BRC-20S.

As an entry point to the decentralized world, the exchange serves as the asset activity center of the CeFi world. Although they seem to be two contradictory paths, they are seamlessly integrated in OKX's product offerings. A single button provides access to both DeFi and CeFi worlds; users can freely switch by clicking on the exchange on the left or the Web3 wallet on the right.

In the exchange sector, OKX's innovative capabilities have always been at the forefront of the industry. Entering the wallet sector may seem unrelated to past experiences, but the reality is that the excellent achievements of the OKX Web3 wallet are inseparable from OKX's original gene—focusing on product and user experience. This is why we see the OKX Web3 wallet continuously adding new features, evolving from the initial MPC functionality to incorporating airdrop tools like Cryptopedia and launching AA smart contract wallets.

III. Seemingly Contradictory, Yet Successfully Promoting the Symbiotic Integration of DeFi and CeFi

OKX has a long history in the exchange business, with rich technical innovation and security experience, providing strong technical teams and resource support for wallet development. Among these, security is the primary principle for wallets as tools for managing user assets, and the OKX Web3 wallet has always adhered to the logic of "security first," making multiple efforts and constructions in terms of security.

First, last year, OKX Web3 integrated the Tianyan KYT system, which has up to 300 million on-chain address labels, automatically helping users detect risky addresses when transferring wallets or trading DApp contracts. When encountering malicious addresses or suspicious transactions during risk detection, the OKX Web3 wallet will pop up warnings and provide common scam cases to protect users' asset security.

In July of this year, the OKX Web3 wallet open-sourced its multi-chain signature SDK algorithm for public use and review. Then, on August 7, the newly launched AA wallet also open-sourced its smart contract code, meaning that the OKX Web3 wallet is subject to review and supervision by everyone, enhancing security and enabling continuous evolution, leading CeFi towards openness and transparency while providing new standards for industry development.

From this perspective, whether in past exchange operations or the new Web3 wallet product, OKX has carved out a different path through its technological innovations.

As a decentralized crypto asset wallet, users can not only securely store, manage, and trade various crypto assets in the OKX Web3 wallet, but also quickly transfer their crypto assets from the OKX centralized trading platform to DeFi platforms to participate in various decentralized financial activities, such as liquidity mining, lending, and staking. This interconnectivity and convenience allow users to flexibly allocate assets and gain more returns. At the same time, the OKX Web3 wallet also broadens OKX's product line, serving as an important traffic entry point for the future on-chain world, bringing more users and liquidity to the OKX centralized trading platform.

With the exchange in one hand and the Web3 wallet in the other, OKX appears to be "fighting on both fronts," yet it has successfully promoted the symbiotic integration of DeFi and CeFi. From an industry perspective, for a long time to come, CeFi and DeFi may still compete with each other, but they will certainly complement each other, gradually growing to their fullest potential in their respective usage scenarios. CeFi indeed needs to seek transformation, pursuing a more open and transparent financial ecosystem through DeFi to benefit more users and provide more comprehensive solutions and services for the crypto industry.

In this regard, OKX is already the most valuable reference sample. They have integrated the centralized trading platform with the decentralized finance field, forming a unique product form that deeply integrates the OKX Web3 wallet and exchange products, allowing users to complete both centralized and decentralized trading on a unified platform, opening up a new path and bringing more inspiration to the crypto industry.