The explosion of decentralized exchanges and platforms
Decentralized exchanges such as Uniswap have not only overtaken, but also far surpassed the classic exchanges such as Coinbase. Their growth in one year exceeds 500%.
The year 2021 is clearly a year of great expansion for cryptocurrencies, with several record-breaking successions, both for individual currencies such as Bitcoin, Ethereum or Solana and for the global market. The interest shown by institutional investors such as Morgan Stanley or Charles Schwab – a movement that had already started in the spring of 2020 – has certainly contributed to this. More surprisingly, decentralized exchanges (marketplaces) such as Uniswap, Pancakeswap, Curve, dYdX or Raydium have seen their traffic and usage take off, to the point of attracting a higher monetary transaction volume than centralized exchanges such as Coinbase, Kraken or FTX.
The Chainalysis Institute has just published a study on the subject: Cryptocurrency exchanges in 2021. And it clearly shows this evolution. For the record, decentralized exchanges (or DEXes) such as Uniswap operate solely on the basis of a smart contract, they do not belong to a particular entity. They are DeFi (decentralized finance) applications and their evolution is subject to the vote of their main participants.
The domination of decentralized exchanges
First point: while most exchanges were in the same league at the beginning of 2019, by Q3 the domination of DEXes is blatant. It even appears that in comparison, traditional exchanges are losing ground. On the other hand, one point is not always clear in this Chainalysis table because some exchanges meet several of the criteria taken into account.
Growth of exchanges by type. © Chainalysis
Thus, as the table above shows, the number of exchanges can be broken down as follows:
- DEXes: more than 200;
- OTC (over the counter): more than 150. OTC is the term used when a platform allows direct exchanges between traders. Binance, FTX or Bitfinex are good examples. Kraken or Coinbase also allow it;
- Derivatives: more than 100. Here we have derivatives and therefore investments of a speculative nature. Here again, Binance and FXT meet this criterion;
- Centralized exchanges: less than 100;
- Exchanges considered “high risk”: less than 100. Exchanges such as Cryptopia – which has had 15% of its assets stolen – and Bitgrail are on this list.
Confidence of large investors is a must
Another point. By definition, since they do not depend on a particular company, DEXes are based on the amount of money that individuals or investors are willing to “stake” (lock in).
The value of assets placed in decentralized exchanges has risen dramatically since the summer of 2020. © Chainalysis
Yet, this other chart from Chainalysis, above, shows that as of the summer of 2020, these assets have experienced a huge takeoff. The $100 billion mark was surpassed by early 2021. Last September, it stood at $143 billion.
One thing that stands out is that DeFi has established itself and managed to gain the trust of a sophisticated audience. In fact, other figures given by the Chainalysis study indicate that DEXs are primarily attracting large investors. For example, in August 2021, the number of transactions on DEXes was over 5.1 million compared to over 14.6 million on centralized exchanges. However, the average transaction on a DEX is $26,000, compared to $12,000 on a centralized exchange.
In other words, exchanges such as Coinbase or Kraken still attract a large audience and are an easier entry point for individuals. DEXes, on the other hand, seem to appeal to professionals more accustomed to the intricacies of trading.
Finally, the Chainalysis study notes that, even on DEXes, Bitcoin and Ethereum are still the most traded.