Why Centralized Exchanges Are Going Full DeFi Mullet in 2025

The suits are finally getting a haircut—and it's not just for show. Major centralized exchanges now sport a 'business in front, party in the back' approach, grafting DeFi protocols onto their legacy systems like blockchain duct tape.

When liquidity mining meets compliance teams

TradFi gatekeepers can't ignore yields that make hedge funds blush. Behind the KYC walls, CEXs now quietly route your stables through AMMs—collecting fees while maintaining plausible deniability.

The custody conundrum

Cold wallets still hold the keys, but smart contracts handle the heavy lifting. It's decentralization theater with 24/7 customer support—perfect for investors who want anarcho-capitalism with chargeback protection.

As one VC put it while adjusting his algorithmic stablecoin tie: 'We're not abandoning regulation—we're rebranding regulatory arbitrage as innovation.' The more things change...

This isn’t Coinbase’s first attempt to push onchain with its distributional advantage. cbBTC, its Wrapped Bitcoin product was bootstrapped using Coinbase as the main distribution rail.

By integrating Base’s lending markets under the hood, cbBTC holders on Coinbase could easily borrow USDC against their Bitcoin collateral without leaving the Coinbase app.

Case study number three.

Binance and its extremely complicated Alpha campaign, which has been running since May. 

Within Alpha are dozens of “trading competitions” that reward users with “Alpha Points” to trade selected assets, which will in turn entitle you to airdrops. Yet, calling it a competition is misleading — most of these points are handed out based on trading volumes, not P&L criteria.

That’s puzzling until you realize there is a double-pronged strategy at play here.

The first prong is to drive Binance Wallet adoption. Alpha points are eligible only if one trades using its keyless Binance Wallet. This has enabled Binance to absolutely dominate crypto “wallet market share,” as seen below.

There are two caveats here. For one, the activity isn’t organic.

Second, these aren’t “Binance Wallet” users so much as they are simply “Binance CEX” users.

Traders still pay the Binance CEX trading fee, so the revenue capture is different from that of a MetaMask user paying a fee for using its in-app trading features. Calling it “wallet market share” is probably misleading. 

Still, it has allowed Binance to drive adoption for its wallet and potentially funnel users onchain on a piece of infrastructure that they own, which they can monetize later.

The second prong of the strategy behind Binance Alpha is to bolster its own onchain ecosystem on BNB Chain.

Powering the trading of these Alpha tokens under the hood is PancakeSwap, which has exploded in volumes since Alpha kicked off in May.

Source: Blockworks Research

These different strategies convey a clear sign: the onchain economy has come a long way from just a few years ago.

DeFi is now mature and secure enough that centralized entities, which must adhere to regulatory requirements, can confidently integrate DeFi infrastructure into their own compliant technology stacks.

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