DEXs are getting increasingly popular. Because of the popularity of decentralized finance, the activity of decentralized exchanges (DEX) and bitcoin (BTC), and other cryptocurrencies outpaced the number of transactions on centralized exchanges (CEX).
It is suggested by the blockchain analysis firm, Chainalysis in its most recent report entitled ” Cryptocurrency Exchanges 2021. An Analysis of the Competitive Landscape “, published this Tuesday, November 8.
A centralized exchange is a company in charge of the custody and exchange of its client’s funds, similar to fiat money exchange houses. Examples are Coinbase, Binance, Okex, and others.
Meanwhile, a decentralized one works based on smart contracts. Thus, greater transparency on operations is granted. Examples of DEX are Uniswap, Bisq, and 1inch.
The preference towards DEX causes users to have greater control over their assets and access to new types of operations. Both innovation and reach are prevailing areas for differentiation between exchanges and growth within an already consolidated industry.
In reality, and according to the accompanying graph, a consistent rise in DEX is signified from the first quarter of 2019 until the third of 2021.
To a certain extent, OTC brokers (who usually work with large private and institutional investors) before falling towards recent months. Possibly this fall is because the purchases of large investors were decreasing while the price of BTC approached the all-time highs again.
And following the analysis, the CEXs, derivatives exchanges, and those specialized in high-risk products; showed some growth but then fell, reinvigorating the position of the DEX.
Transactions in DEX exceed those of CEX
The growth of DEX has been so significant that the total value received and handled on these platforms grew to a little more than USD 10 billion in July 2020. Then it reached a peak of USD 368 billion in May 2021. And then, in September, it leveled off and stood at just under $ 143 billion.
According to Chainalysis, DEX users execute “much larger” transactions than those referred to centralized exchanges. The figures reveal that the average transaction on a DEX is more than $ 26,000 in cryptocurrencies, compared to $ 12,000 for CEXs.
The median for a DEX is just over $ 900 versus $ 150 for centralized ones.
“This is probably because DeFi is also more popular in countries with larger and more established cryptocurrency markets, which also tend to be richer countries,” they say from the firm. “The most important thing here is that DEXs have become extremely popular, which coincides with the explosive growth of the DeFi category in general,” they add.
Knowing this, it makes sense for your average transaction size to be larger, as users of a DEX have likely already amassed a large fund base to implement or are investing money on behalf of others.
It is not far from previous studies, like Messari businesses, which indicated that the DEX moved more than USD 400 billion in the second quarter of 2021.
It can also respond to the DEX’s characteristic of not requiring “Know Your Client,” or KYC, which is advantageous for the convenience it entails and those who want to keep their financial transactions private.
But centralized exchanges are still important
Although the power of DeFi and its various platforms stands out, centralized exchanges continue to play an important role in cryptocurrency trading. They say they continue to grow and appear to be the ones offering the widest variety of assets, “which keeps them attractive to most traders,” according to the firm.
They clarify from Chainalysis that the “more modest” growth of centralized exchanges “demonstrates that they continue to play an important role in the world of cryptocurrencies.”
As adoption grows, most new users will acquire their first cryptocurrency through centralized exchanges. These are often the most accessible services for exchanging fiat currency for different types of cryptocurrencies. Also, even seasoned traders and DeFi users who want to trade cryptocurrencies for cash will trust these services.
And what are the most traded cryptocurrencies?
Chainalysis clears it up. They say that, in general, the fastest-growing categories of exchanges tend to spend most of their transaction volume in Bitcoin or Ether, something, they explain, “relatively unsurprising” since these are the two most popular digital currencies on the market.
But there are notable exceptions. They predict that cryptocurrency derivatives Exchanges, which are all financial instruments whose value is anchored to another asset, were the fastest-growing category by value received throughout the time studied (January 2019 and August 2021), while the Stablecoins were the most traded assets.
The same is for the largest exchanges, in addition to the Exchanges C2C, or cryptocurrency-cryptocurrency, which obtained, respectively, the third and sixth fastest-growing categories.
The likely reason for this is that both derivatives and C2C exchanges cater to experienced traders and do not allow on-platform conversion to fiat currency. Because of that, traders rely on stablecoins to lock in the value of their assets when they no longer want to trade or remain exposed to cryptocurrency price changes.
DeFi in front of it all
It is unlikely to estimate with certainty what 2022 holds, but it is possible to infer that, as is already happening, there is a large share of DeFi, and with it, DEX.
In fact, and for example, the rapid growth and acceptance of decentralized finance is the reason why, in a matter of a year, the Central, Northern, and Western European region received more than USD 1 trillion in cryptocurrencies, or the 25% of all global activity.
DeFi protocols represented three to four of the five services most used by companies for trading cryptocurrencies, with Uniswap, Instadapp, and Dydx being the platforms with the most recurrence.
Time will tell.