With the rise of so-called "decentralized finance," or DeFi—a wave of new cryptocurrency projects that seek to replicate financial services on the blockchain without intermediaries—an important question has emerged: How "decentralized" is all of this stuff, really?
As it turns out, some of what makes up "web3," which DeFi falls within, is dependent on centralized web infrastructure. On Tuesday, Amazon Web Services experienced an outage in its key US-East-1 region that affected numerous websites, from Disney+ to VICE's own backend, as well as Amazon's warehouse operations. Caught in the crossfire was dYdX, a so-called "decentralized exchange" on Ethereum for cryptocurrency derivatives that has raised millions from investors including Andreesen Horowitz.
"Due to a major AWS outage, dYdX exchange is currently down," dYdX said in a tweet on Tuesday. "We are experiencing greater latency across services and impaired functionality with endpoints not working and the website not loading."
Decentralized exchanges generally run directly on top of a blockchain, which means that they have some usability issues (like high fees), but reap the benefits of a decentralized blockchain, like not having a single point of failure. But in many cases, full decentralization is more of a stretch goal than a current reality.
"Unfortunately, there are still some parts of the exchange that rely on centralized services (AWS in this case)," dYdX tweeted. "We are deeply committed to fully decentralizing and this remains one of our top priorities as we continue to iterate on the protocol. We apologize for this outage." dYdX announced that the outage was resolved several hours after saying the exchange was down.
As for what part of the exchange's operations are running on AWS, it's not entirely clear, but the exchange notes that its order book (which matches buy orders and sell orders) is centralized. Other decentralized exchanges, such as Uniswap, don't use an order book model and users instead trade with "liquidity pools" at prices that are determined by an algorithm.
dYdX is hardly the only crypto project that uses Amazon's web infrastructure. A good chunk of Ethereum nodes are deployed on AWS, and Bitcoin nodes can be run on Amazon's web infrastructure, too. It doesn't seem like either of these networks experienced a meaningful disruption due to the AWS outage. The outage also hit centralized crypto exchanges like Coinbase and Binance.US, both of which experienced disruptions.
It's clear that the "decentralized" part of "decentralized finance" has a bit to go in some cases, and Amazon's cloud dominance is now pretty much a core part of the web, whether that's web1, 2, or 3. And that can cause all sorts of problems.