The Great Convergence of CEX and On-Chain: The Evolution of CEX

Author | defioasis

TLDR

● Binance Alpha 2.0 daily purchasing power (daily net buy volume) ranges between $1.5M and $4M.

● Binance Wallet is the second-largest spot trading volume platform after Binance’s main exchange, surpassing any other exchange.

● Gate Alpha’s logic is identical to Binance Alpha 2.0, with daily trading volume between $1M and $2M and daily purchasing power between $200K and $250K.

● Bitget Onchain achieves results similar to Binance Alpha 2.0 but has a more complex management model, with daily trading volume between $3M and $4M.

● In OKX DEX, Solana remains the primary network for user participation.

● Gate’s Innovation Zone has been shut down to fully embrace the Alpha model, while MEXC Meme+ retains a retro approach by setting up alternative trading sections on the exchange for on-chain trading.

Why are CEXs expanding into on-chain?

Two key factors drive this shift: First, the valuations of listed VCcoins are excessively high, lacking wealth effects. Second, memes are issued rapidly with strong explosive potential but short cycles, resulting in transient yet intense wealth effects. These dynamics prompt users to withdraw funds from CEXs to engage in on-chain activities, causing capital outflows. The traditional CEX model, rooted in conventional brokerage systems, struggles to penetrate the on-chain space. Additionally, conflicts surrounding VCcoin tokens force CEXs to pivot toward on-chain integration.

From another angle, this shift is sparking an unprecedented trading paradigm. The convergence of CEXs and on-chain ecosystems is not just about CEXs strategizing their on-chain presence; it marks the emergence of a new trading model. CEXs are evolving from centralized matching platforms, inherited from traditional brokerages, into deeply integrated trading networks that blend on-chain and off-chain functionalities. The early form of this convergence likely began with OKX embedding wallets within its website/app, creating a seamless on-chain entry point. This paved the way for the Alpha model, built on wallet integration, enabling direct purchase of on-chain assets using funds held within the CEX.

Currently, CEXs' on-chain strategies can be categorized into three forms: Alpha, API DEX, and alternative trading sections for on-chain assets.

Alpha

Alpha is built on the foundation of wallets and directly integrated into the main CEX platform, achieving a deeper fusion of CEX and DEX. Users can directly purchase on-chain assets listed on Alpha using funds held within the CEX platform, with the wallet executing the buy-sell logic. Representative examples include Binance Alpha 2.0, Gate Alpha, and Bitget Onchain.

(1) Dual-Address Centralized Management Model, Represented by Binance Alpha 2.0 and Gate Alpha

The dual (contract) address centralized management model involves one contract address managing stablecoins and network gas assets, while another contract address manages altcoin assets. The contract address holding stablecoin assets executes the buy-sell logic. Within the CEX, users have an Alpha account, which operates alongside spot, funding, wealth management, and futures accounts. The logic of Gate Alpha is identical to that of Binance Alpha 2.0.

Transaction Mechanism Breakdown

From an on-chain perspective, looking at it from the altcoin's viewpoint:

● From the contract address holding stablecoin assets -> to the contract address holding altcoin assets: this represents a buy.

● From the contract address holding altcoin assets -> to the contract address holding stablecoin assets: this represents a sell.

Diving into a specific transaction, let’s examine a single trade in Binance Alpha 2.0 where ZKJ is sold for USDT. The contract address holding stablecoin assets, 0x6a...1b90, acts as the executor of the buy-sell logic. ZKJ is transferred from the contract address holding altcoin assets, 0x73...46Db, to the Binance Wallet: DEX Router for the sale. The resulting USDT is then deposited into the stablecoin contract address, 0x6a...1b90.

Thus, at the transaction level, Binance Alpha 2.0 essentially adds an additional layer of buy-sell nesting on top of Binance Wallet, while still utilizing Binance Wallet’s routing. Trading Alpha tokens directly through Binance Wallet is relatively cheaper than using Binance Alpha 2.0. This is reflected in the declining share of Binance Alpha 2.0’s trading volume within Binance Wallet, currently accounting for only about 25%.

The peak daily trading volume for Binance Alpha 2.0 occurred two days before the conclusion of the first BSC trading competition, surpassing $2 billion per day, with BSC accounting for 99% of the volume. Currently, Binance Alpha 2.0 has accumulated a total trading volume exceeding $47 billion, maintaining a daily trading volume of between $1.8 billion and $2 billion. As user trading behavior shifts toward Binance Wallet, it has become the largest spot trading venue outside of Binance’s main platform, surpassing the spot trading volume of any other exchange besides Binance.

Alpha Buy-Side Analysis

The volume-boosting behavior driven by airdrop farming has significantly inflated the trading volume of Alpha tokens. However, a more critical metric than trading volume is the extent to which Binance Alpha 2.0, which leverages Binance’s on-platform user funds, can generate buy-side demand for newly listed coins and withstand selling pressure.

Taking recent data from HUMA as an example, within the 24-hour airdrop period, HUMA recorded a net sell-off of $2.116 million on Binance Alpha 2.0. The selling pressure on its listing day was roughly in line with previous airdropped projects, ranging between $2 million and $2.5 million. This figure also roughly corresponds to the value range of airdrops distributed to Binance Alpha users. New VCcoins are highly likely to break below their listing price, typically experiencing sharp declines of 20%-50% in the first two days, followed by a period of consolidation and accumulation before a potential rally.

Conversely, Binance Alpha 2.0’s current daily purchasing power (net buy volume) ranges between $1.5 million and $4 million (calculated as the sum of net buy volumes across all Alpha tokens), with an average daily net buy volume of about $2 million under normal conditions. For a single coin, this translates to an intraday net buy volume of approximately $500,000. However, on days with strong BSC market performance, Binance Alpha 2.0’s daily net purchasing power can reach $4 million. For instance, a few days ago, BOB doubled in value in a single day, with its net buy volume peaking at over $1.4 million.

Compared to other exchanges, Binance Alpha 2.0 maintains a significant lead. Gate Alpha’s overall daily trading volume typically ranges between $1 million and $2 million, occasionally exceeding $3 million during events. Gate Alpha’s daily purchasing power (net buy volume) is around $200,000 to $250,000, heavily influenced by trending coins, where a single coin can sometimes account for nearly half of Gate Alpha’s total purchasing power.

(2) Distributed Address Management Model, Represented by Bitget Onchain

In terms of final outcomes, Bitget Onchain is similar to Binance Alpha 2.0 and Gate Alpha, enabling users to directly purchase designated on-chain assets using funds held within the CEX platform, with transactions executed through a buy-sell proxy. However, unlike Binance Alpha 2.0 and Gate Alpha, Bitget Onchain does not employ a dual-contract address system to manage user assets.

Transaction Mechanism Breakdown

Bitget Onchain facilitates buy-sell execution for CEX users through EOA (Externally Owned Account) addresses interacting with the Bitget Wallet: Swap Router. When selling on BSC or Base, assets move from an address holding altcoin assets through the Bitget Wallet: Swap Router to an address holding stablecoin (U) assets, and vice versa for buying.

These addresses used for holding altcoin assets and stablecoin (U) assets number in the hundreds, rather than being consolidated into two unified contract addresses. Further investigation reveals that the value of stablecoins (U) stored in a single address holding U assets is approximately $20k.

Bitget was among the early adopters of CEX-on-chain convergence, but unfortunately, it was outpaced by Binance Alpha 2.0. This distributed address management model aligns with Bitget’s strategy of rapidly listing coins on-chain using AI, offering benefits such as preventing funds from being siphoned off by low-quality coins and providing price protection. However, the drawbacks are evident, including a higher likelihood of execution failures and the need for continuous address expansion.

Due to the large number of address sets, it’s impossible to fully retrieve them all. After consulting with a contact at Bitget, it was revealed that Bitget Onchain’s daily active users range between 10k and 15k, reaching up to 20k during events. Daily trading volume is between $3 million and $4 million, exceeding $4 million during events. Moving forward, Bitget Onchain may align more closely with Binance Alpha 2.0, with plans to adjust its underlying architecture by adding an intermediate contract layer for management.

Summary: At the VCcoin level, listing on Binance Alpha 2.0 is straightforward, leaving little room for other exchanges to participate. However, Binance struggles to list Memecoins too early, especially those outside the BSC ecosystem, where it lacks motivation to do so. Under the dominance of Binance Alpha 2.0, other exchanges continue to develop Alpha products not only as a strategic move for on-chain expansion but also to seize the greatest opportunity in areas Binance cannot fully cover, namely Solana and its emerging Memecoin assets. Both Gate Alpha and Bitget Onchain have adopted AI-driven coin listing to rapidly onboard high-potential new assets for their users to trade. The strategy is clear, but Solana’s Memecoin market has underperformed recently. If the Memecoin market rebounds, we can expect trading volume growth for both platforms.

API DEX

The API DEX model involves providing external access to API calls and generating revenue through fees, with OKX DEX as a prime example, though OKX currently keeps its API access free.

OKX was the first exchange to embed wallets within its platform, focusing on creating a seamless entry point and trading experience. OKX offers DEX API, Trading API, and Market Data API, covering the core modules of a DEX system, including single-chain spot trading, swap execution, cross-chain swaps, trade simulation, on-chain settlement, real-time market data, and on-chain data analytics.

OKX DEX is a multi-chain DEX, but for comparison with Binance Alpha 2.0, its daily trading volume across the five major chains is approximately $200–250 million, with around 100k daily active users. Notably, in OKX DEX, where trading activity is relatively authentic, Solana remains the primary network for user participation, in stark contrast to Binance Alpha 2.0’s data, which is heavily skewed toward BSC. Additionally, by offering open APIs, exchanges can attract more external platforms, creating a network effect.

Both Alpha and API DEX models are, at their core, extensions of the exchange’s wallet business, aimed at converting on-platform users to on-chain activities through seamless and smooth entry points.

Alternative Trading Sections for On-Chain Assets

Alternative trading sections for on-chain assets are fully embedded within the CEX’s spot trading system, operating without relying on wallet execution. They represent an exploration by CEXs for listing early-stage on-chain assets, with examples including Gate’s Innovation Zone and MEXC Meme+.

Users can directly use funds held within the CEX platform to purchase early on-chain tokens, such as Memecoins, in dedicated trading sections. The process mirrors traditional spot trading on the exchange, supporting both market and limit orders, with users only incurring the exchange’s transaction fees, free from slippage or DEX taxes.

However, the supply of tradable on-chain assets in these sections, while partially consisting of deposits from on-chain users after listing, is more likely to predominantly comprise assets pre-purchased on-chain by the exchange’s internal departments. These assets are then placed on the platform with order books to attract user purchases. The exchange bears the significant risk of token price declines and thus avoids acquiring excessive amounts of these assets. Consequently, the trading volume and liquidity of on-chain assets in the exchange’s alternative trading sections are extremely low.

Due to the assets being held and managed internally by the exchange, lacking direct on-chain liquidity, these sections struggle to attract long-term users. In the future, a shift toward Alpha or API DEX models will likely be necessary. Recently, Gate announced the closure of its Innovation Zone, fully transitioning to Gate Alpha.

Data Source: https://dune.com/kucoinventures/cexonchain

Follow us
Twitter: https://twitter.com/WuBlockchain
Telegram: https://t.me/wublockchainenglish