At the cost of diminishing arbitrage traders profits of course.
With increasing interest from traditional investment firms and experienced heightened user engagement in the past months in crypto, we can say we are gradually nearing great waves of growth, or what most optimists would call: mass adoption.
As such, we ought to ensure we've developed the tools and optimized our systems to handle such a wave of usage as it is most definitely going to be a big one.
Think about Internet traffic, but concentrated on a much smaller network of computers, yes, that's how big of a deal it is and honestly, I do not believe for a second that we are ready.
In fact, it would be risky to grow at such pace right now for one reason:
Crypto Market Instability
Many of us do not realize how largely unstable the cryptocurrency market is. No, I am not just talking about the rapid price swings of assets in this space, but also the unreliability of the systems that monitor these prices.
Reality checks like this makes me want to appreciate centralized exchanges for the role they've played in aiding crypto survive and scale this long.
We hate that we rely on these centralized entities, but we simply cannot dismiss the impact they've had on our growth.
I mean, have you seen the loads of support CZ is getting on Twitter since news broke that he is demanded to serve jail term?
I mean, when we look at Binance, despite its involvement in Steem hijack, it has had a huge positive impact in the cryptocurrency industry.
That said, my reasons for making mention of centralized exchanges here isn't exactly for the long list of products and services they've developed and released to the market but for the roles they play in creating stability in huge market swings.
When price/data feeds post non-uniform asset prices, traders tend to exploit that in a practice called “arbitrage trading”.
Depending on the level of inconsistency in price feeds, this can be a good or bad thing. Centralized exchanges have played a major role in mitigating the impacts major price inconsistency would have caused through centralized measures such as limiting trades and disabling deposits and/or withdrawals.
Sure, this is not exactly a great thing when we are an ecosystem that thrives to function on “permissionless” design, in other words, void of centralized control.
Yet, we are a hyper volatile market, so much so that data feeds struggle to keep on a heated market days.
UST needed this level of moderation
But didn't get it as it was mostly on-chain operations.
One thing with major price swings is that sometimes they do not occur organically, thus, can have damaging effects.
One of such effects was the event of UST/LUNA crash that caused billions to be extracted from the cryptocurrency ecosystem, some say as much as $300 billion with FTX joining the party down the line.
If we take a step back and look at what Chainlink is building with their Cross-chain interoperability protocol(CCIP), we can see qualities that would have come in handy for the event of Luna/UST.
At its core, CCIP not only enables cross-chain transactions, it also monitors chain activities for abnormalities.
I can only expect that a major sell-off leading to a billion dollar stablecoin depeg would be considered abnormal and a security protocol would be triggered.
Anomaly Detection: The CCIP Risk Management Network continuously monitors all blockchains connected to the CCIP system and can immediately pause cross-chain activity if it identifies any anomalous behavior, such as irregular token flows or false messages. This helps mitigate the impact of market swings or sell-offs that could lead to price inconsistencies across chains.
Rate Limiting: CCIP incorporates rate limiting mechanisms that cap the amount an attacker can extract, even if they manage to bypass the anomaly detection system.This helps contain the damage from market-driven exploits.
Defense-in-Depth: CCIP utilizes multiple decentralized networks to secure a single cross-chain transaction, reducing the risk of a single point of failure. This layered approach to security is designed to withstand various types of attacks, including those stemming from market volatility.
I imagine that such technology could be deployed onto dex-level transactions that do not necessarily involve cross-chain operations. That said, it's only going to be a common practice to attempt exploiting cross-chain asset price inconsistency as the world of cryptocurrency merges more and more through cross-platform asset liquidity sources and markets.
On a big enough scale of attack, the crypto market can be robbed of trillions of dollars if most volumes are based on decentralized exchanges with zero security protocols to manage risks and kick against attacks.
Market stability will be a reward we get for developing the needed solutions for enhanced decentralized markets and cross-chain transaction protocols/data feeds.