DeFi's Last Missing Piece gm Bankless Nation,
Central exchanges continue to win; how can DEXs dial up their growth? Today's Issue ⬇️ - ☀️ Need to Know: Circle's IPO
Tomorrow's IPO's 25x oversubscribed. - 🗣️ Analysis: DeFi's Missing Piece
Finding safety in darkness.
Sponsor: Mantle — Mantle is building the largest sustainable hub for on-chain finance. . . . NEED TO KNOW Circle's IPO Tomorrow 25x Oversubscribed - 💰 Circle's IPO 25x Oversubscribed Ahead of Tomorrow's Launch. The stablecoin issuer may price above the $27-$28 range, with BlackRock buying ~10% of shares. Trading should begin a few hours after market open.
- 🏦 JPMorgan to Accept Bitcoin & Crypto ETFs as Loan Collateral. The $3.7T asset manager will let clients use crypto holdings like $IBIT to secure loans and assess net worth.
- 🚨 French Crypto Kidnapping Suspect Arrested in Morocco. 24-year-old Badiss Bajjou allegedly orchestrated multiple crypto ransom schemes, including attacks on Ledger's co-founder and other industry figures.
| Prices as of 5pm ET | 24hr | 7d |  | Crypto $3.4T | ↘ 3.5% | ↘ 4.4% |  | BTC $104,724 | ↘ 1.0% | ↘ 2.3% |  | ETH $2,608 | ↘ 0.2% | ↘ 0.7% | . . . ANALYSIS DeFi's Last Missing Piece Despite billions in onchain TVL and major advances in wallets, interoperability, and blockchain performance, DeFi has barely begun to reach its addressable user base. CEXs, by contrast, are rapidly growing their users and assets — and not because they are better, but because they are more convenient.  Based on DeFiLlama + public CEX data Apps like Infinex, Defi App, and Definitive hint at what a more seamless onchain experience could look like. Cheaper fees, smaller spreads, access to more assets and yields, etc. But as long as fiat onramps remain slow, expensive, and failure-prone, DeFi will remain a niche product for crypto-native users. The average user can buy a meme stock on Robinhood or trade a token on Coinbase with instantly available funds and minimal friction. Now, try doing that onchain through MoonPay or Transak. You’re greeted with 3-6% fees, >50% failure rates, and up to days of waiting. And for card transactions, onramp failure rates jump to a staggering ~80%. And yet, we’ve seen glimmers of what’s possible when onramp friction disappears: - Moonshot onboarded 1.5M+ users via no-KYC Apple Pay onramp
- Opera Minipay onboarded 8M+ users via no-KYC onramp integrated with local payment methods
- Other similar examples exist, but of course no-KYC only applies to sub-$500 txns
TLDR: Onramps are DeFi’s biggest bottleneck. This piece explores why Web2 onramps work, why crypto onramps still don’t, and what a new generation of integrated DeFi apps can do to finally close the loop. 👇
Web2 Fiat OnrampingIf you’ve ever tried onboarding to Robinhood, Coinbase or your choice of neobank, you were more than likely met with a buttery smooth ACH or debit card onramp experience. Onramp UX can be broken down into 3 components: Fees, Onramp Failure Rate, and Speed. Most CEX onramps are virtually free, maintain low failure rates and make funds instantly accessible on platform, delivering a near perfect UX. Even further, fintechs and CEXs are running aggressive onboarding campaigns incentivizing users to deposit as much as possible. All in all, when you combine smooth onramping with aggressive onboarding campaigns and significant marketing dollars, it’s easy to understand how CEXs fundamentally monopolize distribution, effectively pricing out incumbents. But why are traditional onramps so good?In short, CEXs are willing to treat fiat onramping as a loss leader to optimize user conversion. CEXs actively subsidize interchange fees, risk, compliance, KYC, liquidity costs, FX and all other costs associated with onramping; so when users deposit $100, they are actually credited $100 on the platform. In addition, CEXs’ active subsidization and aggressive risk posture enables onramps to reduce failure rates and allow funds to be instantly tradeable. At a deeper level: When onramping with any of the popular payment methods, there is a window for reversal. Ex. an ACH transfer can be reversible for up to 60 days. But wait, the CEX made my funds immediately tradable, right? This is where the magic lies. CEXs don’t allow you to move the funds off the platform until after the ACH clears. Imagine you buy BONK on Coinbase, the price falls 50%, and you initiate a debit chargeback. When exchanges allow immediate trading before funds clear, they manage their exposure through proactive hedging strategies like internal risk pools, offsetting user positions against each other, and deploying statistical models to predict ACH failures and dynamically hedge. By actively hedging these pre-ACH trades, exchanges minimize losses and can seize user funds if there is fraud. Of course, the strategy is not always foolproof and it’s harder to hedge long tail pairs or 0DTE options. But again, CEXs are more than happy to let onramps act as a loss leader because they cross-sell higher margin products over time (perps, options, margin etc) and earn many times that in profit. Unfortunately, when onramping directly onchain, the dynamics are different. The non-custodial nature of wallets allows users to instantly move funds elsewhere, leaving companies with no recourse in the event of an ACH reversal or debit chargeback. So that’s why companies like Transak, Moonpay etc. charge such high fees, maintain slow settlement times and have high failure rates. They are as risk off as possible – maximizing for downside protection above all, because there is no ability to seize funds, hedge risk or act as a loss leader. Understanding CEX EconomicsA CEX acquires a new cohort of users through a variety of acquisition channels. Most users are good and will use the products turning a profit for the CEX. Some users are bad and will cost the CEX money, either because they fraudulently disputed fiat onramp transactions or simply onboarded to the app and stopped using it post-onboarding incentives. Each cohort consists of a mix of users who may be any of the archetypes above. The CEX’s job is to simultaneously engage profitable users to the maximal extent while limiting the downside of poor or malicious users. Ultimately the goal is to yield a net positive for each new cohort.  Illustrative CEX risk modeling With every new user cohort, the CEX data advantage keeps compounding. They continuously refine their models to minimize downside risk and maximize upside. Consider how much data Coinbase alone has amassed since 2013- from AML and fraud detection to deep behavioral insights- giving them a significant edge. In summary, CEXs work on a spectrum between loosening risk parameters to fuel top-line growth and tightening them to avoid -EV user cohorts. But the leading CEXs are so massively profitable that they lean risk-on, prioritizing aggressive top-line growth. EndgameDeFi’s competitive advantage lies in leveraging its structurally lower costs to become competitive with CEXs. Think about the millions CEXs spend on employees, compliance, legal, etc. meanwhile Hyperliquid, Pump and Axiom generate 9-figures in profit with sub-20-person teams. The next step function unlock in crypto comes down to profitable trading venues allocating a portion of revenues to being competitive at the top-of-funnel. Achieving parity in marketing, brand and lindyness is all downstream of an easy-to-use product- and this will get us there. Let’s run through a quick example, a Brazilian user wants to onramp to xDEX via Debit Card: Debit card initiation -> Onramp provider credits USDC to user’s DEX wallet -> Smart contract verifies USDC onramp payout -> Smart contract pays out x% of TVL onramped to the provider (e.g $5 for every $100 onramped) From a user’s POV, this drastically reduces onramp failure rate, makes funds instantly tradeable and reduces fees to zero. In practice, reaching parity with CEXs in onramp UX. If a protocol pays 5% of TVL to onboard capital but can generate >5% annualized revenue on that TVL, the subsidy is worth it. And our internal models show perp DEXs would likely produce >20% annualized revenue on onramped TVL. Ultimately, onramp subsidies are the key to growing productive TVL outside just the crypto native world. And driving productive TVL is infinitely more impactful than simple token buybacks: it drives more revenue and ultimately long-term token value appreciation. This is how we move price discovery onchain.
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