Web3 aims to distribute control and enable open access. Yet the crypto industry today relies heavily on pricing from centralized entities. Such concentration of power undeniably undermines the same values Web3 promotes.

Centralized exchanges (CEXes) can manipulate token prices, trading volumes, and momentum. In this blog post, I showed how Binance was caught red-handed when they tried to “instill confidence” during the UST crash.

Here’s why decentralized pricing is the solution.

Entirely derived from on-chain DEX data, it is:

• Transparent - All pricing data is public
• Verifiable - Anyone can validate the pricing
• Resistant to manipulation - Pricing comes from decentralized trades

Without decentralized pricing, Web3 cannot fulfill its promise. The same problems plaguing traditional finance will persist.

The Problem

Without decentralized pricing, Web3 is still largely dependent on legacy systems and fails to fully break away from centralized intermediaries. The prices of crypto assets today are predominantly derived from centralized exchanges like Coinbase and Binance or data aggregators like CoinMarketCap and CoinGecko. This allows exchanges to manipulate markets for their or their customers’ benefit.

We’ve seen clear examples of such manipulation during events like the UST and the LUNA collapse. Centralized exchanges like Binance reported artificial price floors for UST while its peg was failing and paused LUNA price feeds as its price crashed. These misleading prices led to huge losses for traders relying on them.

From a Web3 perspective, it makes no sense to depend on centralized exchange pricing. Web3 is designed to create a more decentralized and transparent environment. Centralized exchanges are inherently centralized and opaque.

Arguably worse, centralized crypto exchanges lack the same oversight applied to traditional finance exchanges. Without regulation by authorities like the SEC, centralized crypto exchanges face little accountability for their actions and can manipulate the markets with impunity.

Limitations

Smart contracts need prices, so they depend on Oracles (primarily Chainlink) because computing those prices from chain data would incur unacceptable gas fees. Chainlink and other oracles synthesize multiple prices provided by centralized exchanges. A source of prices purely derived from chain data is needed. Luckily Credmark makes one available.

Credmark uses on-chain DEX data to produce transparent, verifiable pricing for tokens. These decentralized prices are derived from liquidity and swap data from Uniswap and other DEXes. The pricing algorithm and model are completely open source so users who rely on them can verify the dependencies.

Decentralized pricing will unlock Web3's true potential to transform finance and the internet as we know it. Without it, Web3 innovation will remain centralized and therefore vulnerable to manipulation by centralized players.

Credmark built its price database and API to solve this problem. As Web3 and DeFi continue to evolve, decentralized pricing will be the key driver in ensuring the ecosystem lives up to its democratic ethos.

About Credmark

Credmark runs a financial modeling platform powered by reliable on-chain data. We curate and manages DeFi data making it available via API and the Snowflake Marketplace around the globe and across industries.

Our community of quants, developers, and modelers actively build models for the DeFi community by leveraging our data API and tools. Join the growing community and together we will advance the next-generation financial system.