Centralized exchanges enter DeFi: Why Bybit plans to launch ByReal

While all transactions are processed on-chain, users interact with Alpha through their existing Binance accounts, without the need to set up a separate wallet or manage mnemonics, greatly reducing the entry barrier for Web3 newcomers.

While all three platforms are moving toward the CeDeFi model, their paths are significantly different. Bybit targets DeFi native users through a fully decentralized architecture and advanced liquidity mechanisms; Coinbase adopts a dual-track strategy to serve both retail and institutional customers through differentiated infrastructure; and Binance is focused on driving mass adoption by simplifying Web3 complexity.

Each exchange is exploring its own trade-offs in asset custody, product planning, and integration depth, together shaping the diverse entry points of this evolving CeDeFi ecosystem.

3. Strategic drivers of centralized exchanges (CEX) turning to DeFi

3.1. Seize early token opportunities and avoid listing risks

The first reason is straightforward: CEXs want priority access to popular tokens, but they can’t list them fast enough.

Most new tokens are now issued directly on decentralized exchanges (DEXs), where permissionless listing mechanisms and widespread attention drive rapid volume growth. However, due to restrictions such as legal review, risk management, or regional compliance, CEXs are often unable to list these tokens immediately even if they clearly see user demand.

This delay carries real opportunity costs. Trading volume flows to decentralized platforms like Uniswap, and CEXs lose listing fee income. More importantly, users are beginning to associate token discovery and innovation with DEXs rather than CEXs.

By launching their own on-chain products, CEXs have created a compromise solution. Platforms like ByReal and Binance Alpha act as semi-sandboxed venues: tokens can be traded without going through the formal listing channels, but still in a controlled and brand-safe environment. This allows exchanges to monetize user activity through exchange fees or token issuance mechanisms early on while maintaining legal arms length. Exchanges provide access channels but do not directly custody or endorse these assets.

This structure provides CEXs a way to participate in token discovery while avoiding triggering regulatory responsibilities. They can both capture liquidity and generate revenue, while directing activity back to their own ecosystems - while waiting for the formal listing review process to catch up.

3.2. Keep users on-chain and avoid churn

The second driver stems from user behavior. Although DeFi leads the way in token innovation and capital efficiency, it remains difficult for mainstream users to easily access. Most users are reluctant to manually transfer assets across chains, manage wallets, approve smart contracts, or pay unpredictable gas fees. Despite these obstacles, the most attractive opportunities (such as new token listings and yield strategies) are increasingly happening on-chain.

CEXs (centralized exchanges) have identified this gap and responded by embedding DeFi access directly into their platforms. All of the CEX integrations mentioned above allow users to interact with on-chain liquidity through a familiar CEX interface. In many cases, exchanges completely abstract away wallet management and gas costs, allowing users to access DeFi as easily as using Web2 applications.

This approach achieves two goals. First, it prevents user churn. Traders who might otherwise move to a DEX (decentralized exchange) can now stay within the CEX ecosystem even if they use DeFi products. Second, it strengthens the platform’s defensibility. By controlling the access layer, and even gradually the liquidity layer, CEXs build network effects beyond spot trading.

Over time, this approach translates into a user lock-in effect for the platform. As users become more sophisticated, many will seek cross-chain routing, yield products, and trading strategies. If a CEX has its own DEX infrastructure, Launchpad layer, or even a dedicated chain (like Coinbase’s Base), it can ensure that users, developers, and liquidity are firmly bound to its ecosystem. User activity is tracked, monetized, and recycled, rather than flowing to third-party protocols.

In fact, on-chaining enables CEXs to control the full lifecycle of user funds: from fiat deposits, to DeFi exploration, to eventual token listings and exits - all in a unified and revenue-generating system.

4. The future of CeDeFi

The expansion of large centralized exchanges (CEX) to the chain marks an important inflection point in the evolution of the crypto industry. CEX no longer regards DeFi as an external phenomenon, but begins to build its own infrastructure, or at least ensures direct access to the user layer.

4.1. Blurred boundaries: the rise of a new trading paradigm

As CEX integrates on-chain services, the boundaries between "exchanges" and "protocols" are becoming increasingly blurred from the user's perspective. A user who uses Bybit to trade on-chain tokens may not even realize whether he is interacting with a decentralized protocol or a centralized interface. This convergence may significantly reshape the liquidity architecture, product design, and user flow of the entire industry.

Institutional behavior will also be a key observation point, but a comprehensive capital influx is unlikely to occur in the short term. Institutions remain cautious, mainly because some risks have not been resolved: regulatory uncertainty, smart contract vulnerabilities, token price manipulation, and opaque governance mechanisms.

Exchanges launching on-chain services do not eliminate these structural risks. In fact, some institutions may view DeFi access intermediation by exchanges as a new layer of intermediation risk. Realistically, early attempts may mainly come from hedge funds and proprietary trading firms, which will deploy small-scale capital for experiments. More conservative players, such as pension funds or insurance companies, are expected to remain on the sidelines for the next few years. Even if they participate, they may adopt an extremely cautious allocation approach - typically no more than 1-3% of their portfolio.

Against this backdrop, predictions about "billions of dollars in capital inflows" appear overly optimistic. A more realistic prospect is gradual testing in the hundreds of millions of dollars. However, even these modest inflows may enhance market depth and mitigate volatility to a certain extent.

4.2. The Evolving Role of Exchange Tokens

As exchanges continue to expand their on-chain services, the functionality of native exchange tokens will evolve as well. Holding a certain amount of these tokens may bring users on-chain fee discounts, or unlock yield opportunities through staking and liquidity incentives. These changes may introduce new utility to exchange tokens, but also new volatility.

Currently, Binance is the only major platform that provides clear and sustained utility for its native token (BNB), which plays an active role in multiple services. Most other exchange tokens' functionality remains limited to basic fee discounts.

As CeDeFi infrastructure matures, this status quo will change. As exchanges operate integrated on-chain and off-chain platforms, their native tokens will become the link between these two worlds. Users may need to hold exchange tokens to participate in staking, Launchpool, or get early access to newly launched projects - whether centralized or decentralized.

This functional expansion makes exchange tokens go beyond simple tool assets. They will become core assets in vertically integrated ecosystems. Exchanges with existing tokens may significantly enhance the utility of their tokens, while exchanges that have not yet issued tokens may consider launching new tokens to support DeFi-related services. This is especially likely for platforms that develop their own blockchains or differentiated DeFi layers.

In short, exchange tokens are evolving from simple fee tools to strategic assets. They will play a key role in user retention, protocol integration, and cross-platform capital flows.

4.3. Convergence in Progress: A New Competitive Landscape

CEX's push for the expansion of on-chain services is not just a defensive strategy, it reflects an active bet on the future of the crypto ecosystem. Exchanges no longer view DeFi as a threat, but rather as a neighboring space that can be integrated or even absorbed.

The most likely scenario is convergence. Major exchanges will increasingly operate semi-decentralized networks, and independent DeFi protocols may find themselves dependent on or even integrated into these growing ecosystems. This could ultimately lead to a redistribution of power and liquidity, with CEX-dominated platforms becoming the gravitational center of DeFi activity.

This trend could lead to a more unified market structure, with liquidity flowing freely between centralized and decentralized environments. Users will be able to choose the combination of trust, transparency, and convenience that suits their preferences. The competitive landscape is changing, and Bybit's launch of ByReal may be an early signal that this hybrid future is taking shape.