Why Decentralized Exchanges Are Becoming Central: A Conversation with Varun Datta, Founder and CEO of Truth Ventures

The collapse of several major centralized crypto firms has renewed interest in decentralized trading platforms (DEXs), particularly among users seeking greater control over their assets. While centralized exchanges continue to dominate much of the market, decentralized exchanges have steadily expanded their share of trading activity and become a critical part of the broader Web3 ecosystem.

The debate is no longer whether DEXs can compete with centralized platforms, but how quickly they can overcome remaining challenges around liquidity, user experience, and scalability.

As the head of Web3 VC infrastructure fund, Varun Datta, Founder and CEO of Truth Ventures, has closely followed the evolution of DEXs. We spoke with him about the factors driving DEX adoption, the opportunities attracting investor attention, and what the next phase of Web3 growth could look like for the sector.

Q: Over the last two years, why has there been such a major shift toward in popularity with decentralized exchange platforms?

Varun Datta: The biggest factor has probably been the growing trust they are gaining. For a long time, centralized exchanges dominated because they were easier to use and offered deeper liquidity. Most people entering crypto naturally gravitated toward platforms like Binance, Coinbase, or Kraken because they made the process far more accessible.

But the collapse of FTX changed how many people viewed custody and counterparty risk – it highlighted the reality that convenience comes with trade-offs when a third party ultimately controls your assets. I truly think the perception has change forever on CEXs following the FTX. Interest in self-custody and decentralized trading grew significantly, as a result, particularly among users who wanted greater control over where and how their assets were held.

What we’re seeing now is a return to one of the core ideas that helped shape the crypto industry, which is giving users more control over their assets and making platform activity easier to verify. Trust and transparency are also key themes here (which Web3 is slowly proving to be. 

Q: Why do you personally believe DEXs are becoming so important to the Web3 marketplace?

Varun Datta: For me, it comes down to control. People want control. Users increasingly want greater visibility over their assets and less reliance on a third party, and that stretches across so many parts of modern society. 

On a decentralized exchange, users can see where assets are held, transactions are settled on-chain, and they retain control of their funds throughout the trading process. Instead of placing trust in a company, users are placing trust in transparent systems and code.

That represents a significant shift in how people interact with financial platforms.

For years, many people viewed decentralization as an ideal rather than a practical business model. Now, the technology has improved enough for these ideas to function effectively. Trading has become faster, and liquidity has grown, and at the same time some usability barriers that once limited adoption are gradually being removed. 

Q: Key critics used to argue that decentralized exchanges were too slow, untrustworthy, or difficult for the masses. Do you think that has changed?

Varun Datta: Absolutely. Early DEXs proved the concept, but the user experience really wasn’t there with nascent platforms. Setting up wallets and managing transactions felt far more complicated than using a centralized exchange (and that point perceived as untrustworthy), which naturally limited adoption. Even something as simple as navigating the platforms was too clunky for most people. 

Plus, It’s much simpler to get started now than it used to be. I’d say this is mostly due to onboarding being less intimidating for the average user, and more robust now. But it could also be that a lot of decentralized platforms now offer a trading experience that feels fairly close to what users expect from centralized exchanges, so there’s a comfortability and relatability in their use. Both are key factors. 

For example projects like Hyperliquid have attracted so much attention because of addressing those issues. A key theme is  that people are no longer using these platforms purely because they’re decentralized; it’s because the products themselves have become genuinely competitive.

Q: Is regulation accelerating that trend?

Varun Datta: I think regulation has played a role, although it’s not the only factor driving adoption. Increased regulatory scrutiny has highlighted just how dependent many users are on centralized platforms. When an exchange faces legal, operational, or compliance challenges, users can quickly find themselves affected by decisions they have little control over, which obviously isn’t great if they don’t have an alternative. People get jumpy too. 

Regardless of where people stand on regulation itself, the conversation has sparked change. Many investors think more carefully about counterparty risk and asset custody and there’s now growing interest in alternatives that give users greater control over their assets.

Another huge factor is that decentralized platforms reduce the reliance on a single company to manage funds and execute transactions. One of their key advantages is that activity can be verified on-chain, providing a level of transparency that many users increasingly value, especially after the downfall of certain centralized exchanges, such as FTX, in the past

Q: In terms of investment, what is going on in the DEX sector?

Varun Datta: My main interest, you could even call it a source of excitement, is the infrastructure being built around the ecosystem. I reckon a lot of the long-term value will come from this.

The projects I pay the closest attention to are solving practical problems that still limit adoption. A couple of examples would be improving user experience, or making infrastructure more reliable. Solving problems in these areas will create lasting value, and lasting value excites me so much more than short term wins.

Even the improvement to tools developers use to build new applications excites me. The common thread is that these products make the ecosystem easier to use, easier to build on, and easier for a wider audience to access.

At Truth Ventures, we’re generally more interested in businesses solving persistent problems than projects benefiting from short-term hype cycles. Web3 has had too much of that in the past. Ultimately, adoption matters more than attention. The companies that create products people continue to use are usually the ones that endure. By this I’m talking companies like Bittensor, peaq, Ternoa, INERY, 1inch, Stark Net, Plume and Pendle, all of whom, we have investein in over at Truth Ventures.

Q: Some people still associate the cryptocurrency market primarily with speculation. Do you think that perception is changing, and how fast if so?

Varun Datta: I do, although I think we’re still in the early stages of that shift.  Speculation hasn’t disappeared, but it no longer dominates every conversation like it used to. Compared to previous market cycles, there’s much more attention on whether products are genuinely useful and whether people continue using them once the initial excitement fades. To me, that’s one of the clearest signs that the industry is maturing. Plus traditional finance institutions are increasingly showing times of creeping towards what crypto and Web3 have to offer. 

What encourages me is that people are spending less time talking about narratives and more time evaluating whether products actually work and attract users. Investors, including Truth Ventures, and builders are both becoming much more focused on execution, which I think is a positive sign for the industry’s long-term evolution.

DEX are a really good example of that evolution. A few years ago, many users were hesitant to trust them or found them difficult to use. As the technology has improved, more people have started to see the value in having greater control over their assets rather than relying entirely on a centralized platform. 

Q: Looking ahead, what role will DEXs will play in the future of mainstream global finance?

Varun Datta: I don’t see decentralized exchanges replacing centralized platforms entirely, but I do think they’ll become a much larger part of how digital assets are traded over the next decade.

Centralized exchanges still serve an important purpose, particularly for newer Web3 users. Theres is legacy brand awareness there. At the same time, I expect more people to become comfortable managing their own assets as wallets and trading platforms continue to improve.

The pace of progress over the last few years has been difficult to ignore, which is why I’m optimistic about where the sector is heading. Every day I see more users becoming familiar with self-custody, and the barriers that once made decentralized trading feel intimidating are gradually coming down.

For a long time, using a DEX meant accepting compromises, but if those compromises continue to shrink – or in a perfect world cease to exist – adoption becomes a much easier case to make. And we have seen those compromises reduced over time, which is why  I can’t not think that decentralized exchanges will play an increasingly important role in the future financial ecosystem.

About Varun Datta and Truth Ventures

Varun Datta is the Founder and CEO of Truth Ventures, a venture capital firm that invests in early-stage Web3 startups, those building the next phase of Web3 infrastructure. Varun Datta has 15 years of experience as an entrepreneur and investor, working with companies that use blockchain and other emerging digital technologies.

Through Truth Ventures, Varun partners with founders to provide funding, advice, and industry connections that help their businesses grow. The firm typically makes initial investments of $25,000 to $50,000, supporting projects as they develop and expand.