In recent years, centralized exchanges (CEXs) have faced a mounting wave of criticism from the crypto community. The era when users and projects could reliably experience a strong wealth effect from new token listings on top exchanges has largely faded. In this piece, we’ll break down the issues within the CEX landscape and explore why the decentralized alternatives have begun to attract more attention and capital.
The fading “wealth effect” in CEX listings has a lot to do with internal project challenges. To get listed on Tier 1 exchanges, projects often pay steep fees, drain resources, and focus on short-term engagement tactics. This creates a cycle where projects exhaust their potential early, struggle to sustain momentum, and leave investors questioning their long-term viability.
To secure a listing on a top-tier exchange, many projects spend large amounts on listing fees and promotional requirements, depleting their resources before they even launch. Listing fees for major exchanges like Binance often reach millions of dollars, creating significant financial barriers that strain project resources. In addition, some exchanges demand a large portion of a project’s token supply, reducing the number of tokens available for community supporters and retail investors.
Initial exchange offering (IEO) participants are frequently motivated by short-term financial gains rather than long-term engagement with the project. Many participants aim only to secure their token allocations, intending to sell quickly on the secondary market for a profit. This behavior discourages the development of a genuine, engaged community and leaves projects with low user involvement and weak market reception. To outside observers, these projects may seem like “cash grabs,” damaging their reputation and growth potential.
When projects allocate significant financial and community-building resources upfront for CEX listings, their capacity to achieve sustainable growth is often weakened. This emphasis on immediate financial returns over consistent, value-driven development can result in projects that seem shallow and short-lived.
A prime example is SushiSwap’s (SUSHI) launch in 2020. Shortly after listing, the project’s founder, Chef Nomi, sold a large portion of his developer fund allocation, leading to a major sell-off and a loss of confidence from the community. Although SushiSwap was later salvaged under new leadership, this incident highlighted how prioritizing immediate returns can erode trust and make projects appear “hollowed out” or “rugged,” ultimately deterring future investment.
The practices of Tier 1 exchanges, along with a lack of transparency from Tier 2 exchanges, have only exacerbated the declining wealth effect in the CEX environment. Exchanges like Gate and MEXC have been widely criticized for their opaque business practices, including actions that resemble data manipulation, excessive printing of “fake” tokens, and prioritizing profit over user trust and the meme-driven culture that once characterized the crypto community.
As Arthur Hayes, co-founder of BitMEX, recently highlighted in his blog post “PvP” on Medium, today’s crypto market resembles a “player vs. player” landscape. Hayes describes how exchanges exploit the high fully diluted values (FDVs) of tokens with low circulating supplies, allowing them to profit at the expense of retail users who often find their investments “sloshed down the toilet.” With each listing, exchanges reap the benefits, while retail users bear the brunt of declining token prices. Projects are pressured to pay exorbitant listing fees with little to no guarantee of positive performance, especially when venture capitalists and CEXs profit by setting inflated valuations.
The behavior of Tier 1 exchanges, particularly those mandating large token contributions or fees from projects, has fostered an environment that resembles a PvP dynamic rather than a collaborative ecosystem. As Hayes notes, “Regardless of the exchange, tokens have not pumped.” Instead, only venture capitalists (VCs) and exchanges have seen returns, with token prices often stagnating or declining post-listing.
The days of exponential returns — 10x or even 100x gains — have become rare, with retail traders left questioning the once-promised returns from new listings. During the 2017 and 2021 bull markets, it was common to see newly listed tokens on Tier 1 exchanges like Binance and Coinbase experience initial surges of 10x or more within the first few days or weeks. For example, in 2017, Binance-listed tokens such as Binance Coin (BNB) saw returns exceeding 2000% within a year. In 2021, Solana (SOL) went from around $1.50 at the beginning of the year to an all-time high of over $250 by November, a gain of nearly 17,000% within 11 months.
In contrast, many new listings in 2023–2024 have shown flat or declining performance, with few achieving even a 2x increase post-listing. A recent study by Maelstrom, as referenced by Arthur Hayes, reviewed 103 tokens listed in 2024 on major exchanges, finding that the median post-listing return was negative, with most tokens failing to appreciate meaningfully after the initial hype. This shift has left retail traders increasingly skeptical, as the explosive growth and rapid returns previously associated with CEX listings have largely faded in recent cycles.
In addition, CEXs have gradually shifted their focus away from retail investors and community engagement, veering towards high-risk contract and derivative trading over spot trading. This change encourages users to gamble on highly leveraged products, further deviating from the principles of financial empowerment that originally attracted people to crypto. Even the so-called “memes” launched on CEXs often lack authenticity, functioning instead as profit-driven schemes that ultimately result in significant losses for ordinary users.
While the wealth effect is fading in CEXs, decentralized exchanges (DEXs) and fair-launch methodologies have witnessed significant growth. Decentralized exchanges now account for 13.6% of the total spot trading volume, up from a mere 0.03% in 2019, according to data from The Block. This growth underscores a paradigm shift in user preference, with many individuals gravitating towards DEXs due to their commitment to transparency, user control, and a more equitable distribution of value. Fair launches, which allow communities to invest without preferential treatment for VCs or institutions, have revived the spirit of democratization and shared wealth that once characterized the crypto market.
The rise of meme culture in the crypto ecosystem has also had a profound impact. Unlike CEX-driven meme tokens, which are often short-lived and profit-driven, decentralized meme coins and tokens generally foster a sense of community and humor that resonates with retail investors. By embracing the values of transparency and decentralization, these projects have reignited a culture of collective enthusiasm and shared aspirations within the community.
As the crypto space matures, the limitations and challenges associated with CEXs become increasingly apparent. Users and projects alike are growing wary of the monopolistic tendencies of top-tier exchanges and the opaque practices of lesser-known platforms. DEXs and fair-launch initiatives are setting a new standard, offering a future where projects are valued on their utility, community engagement, and transparency.
This new era of decentralization promises to realign the crypto ecosystem with its original ideals: a collaborative, user-first approach where value generation is distributed more equitably. As the crypto landscape evolves, the community’s focus shifts back to where it started — empowering users, fostering trust, and celebrating the shared culture that defines this space.
In conclusion, while the wealth effect of CEXs may be fading, the principles of decentralization and user empowerment are flourishing. The transition from CEXs to DEXs signals a return to a fairer, more transparent, and community-centered future for crypto trading, offering hope that the spirit of innovation and financial liberation will continue to thrive.
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