The Fragile Nature of Perp DEX Incentives
Stephan Lutz, the CEO of BitMEX, recently shared some sobering thoughts about the current frenzy around perpetual decentralized exchanges. He believes that by the time Token2049 rolls around next year, many of today’s headline-grabbing platforms like Hyperliquid and Aster might not be dominating the conversation anymore. That’s quite a statement, especially considering how much attention these platforms have been getting lately.
There’s been this competitive battle erupting in the perp DEX space, with newer platforms challenging Hyperliquid’s former dominance. Just last week, Aster actually surpassed Hyperliquid in 24-hour trading volume. This has sparked a race where everyone seems to be launching new DEXs, all trying to capture market share in what appears to be an expanding field. Even Justin Sun announced a new DEX at the Singapore conference, which just shows how intense things are getting.
But Lutz thinks this excitement is probably short-lived. He called DEXs “inherent pump-and-dump schemes,” though he was quick to clarify he doesn’t mean that in a negative or scammy way. It’s more about how these platforms operate – they give access to markets without intermediaries and build momentum through heavy incentives. Basically, they hook users with token rewards and fee rebates, then depend on that feedback loop to keep people trading.
The Centralized Exchange Advantage
What really struck me was Lutz’s comparison between the DeFi churn and centralized exchanges. He believes the largest centralized exchanges, led by Coinbase and its peers, are actually better positioned to ride out these cycles. They’ll likely remain dominant long after the latest DEX incentives fade away.
BitMEX itself is trying to straddle both worlds. Lutz acknowledges that DeFi will endure and even embraces it personally as someone who’s been in crypto for a while. But he points out that institutions can’t interact with DeFi the same way they can with centralized exchanges. There’s just too much friction and uncertainty for traditional players.
BitMEX’s Strategic Move to Tokyo
Interestingly, Lutz revealed that BitMEX made a significant infrastructure move recently. They shifted their data infrastructure from AWS Dublin to AWS Tokyo in August. According to him, Tokyo is where the trading volume actually is, not Hong Kong or Singapore as many might assume.
The results have been pretty dramatic. The switch boosted liquidity by about 80% in BitMEX’s main contracts and up to 400% in some altcoin markets. Lutz attributes these gains not to market-maker intervention but simply to reducing latency by being in Tokyo. When everyone except U.S. players are in Tokyo data centers, being elsewhere just creates unnecessary friction.
A Changing Crypto Cycle
Looking ahead, Lutz predicts the next crypto cycle will look quite different from previous ones. With greater institutional participation, Bitcoin could start behaving more like a “real asset,” smoothing out the dramatic peaks and troughs that characterized past cycles.
He expects we’ll see longer plateau phases than in previous cycles. The market will still follow the same basic rules and characteristics, but with lower volatility as Bitcoin becomes embraced by the world’s wealthy as a legitimate asset class. We’re already seeing this trend – bitcoin market volatility has declined significantly since spot ETFs launched in the U.S. last year.
All this means that even though these new DEXs are offering eye-watering leverage that probably won’t last until next year, we shouldn’t expect fireworks for Bitcoin. Instead, it might start looking more like any other sophisticated asset class with gradual ups and downs as the market cycle continues. The wild swings might become less extreme, which could be both good and bad depending on your trading strategy.
