Chainalysis’ most recent report shows that DEXs have outperformed centralized exchanges since January 2021 in terms of on-chain transaction volumes. DEXs will need to address a number of issues in order to keep their market share. This includes regulatory scrutiny.
Comparing DEXs and CEXs
On-chain transactions are only a small part of the total volume, as CEXs typically adopt an “order books” system that allows off-chain transactions. DEXs, on the other hand, rely on smart contract to execute trades automatically recorded onto blockchains.
Chainalysis reports that $175 billion worth cryptocurrencies was sent on-chain by CEXs between April 2021 and April 2022. This is significantly less than the $224 million sent to DEX in the same time period. DeFi, which has boosted the utility of DEXs, also made it more dominant in on-chain transactions, accounting for 75% of total volume.
DeFi activity slowed down and the broader market remained bearish, so the two types exchanges nearly split the market share. “55%” on DEXs, and “45% on CEXs,” are the current market shares. Also, the overall onchain activities are heavily dependent on the market.
“CEX transaction volumes reached an all-time high in 2017 when Bitcoin rose to its highest level.” As cryptocurrency prices increased again, DEX and CEX transaction volume also soared in 2021.
From April 2021 to April 20,22, the report shows that on-chain transactions are concentrated on the top five DEXs more than the top five CEXs. Uniswap and SushiSwap account for 85% of volume on DEXs. Binance.com and OKX.com as well as Coinbase.com and Gemini.com only supported 50% of on-chain CEX transaction volumes.
This report attributes the intrinsic mechanism behind DEXs to supporting this trend of concentration.
“Dexs with greater liquidity may be better able to stabilize pricing for large market participants. However, smaller pools may not be able do so without significant price slippage. This is a disconcerting proposition for consumers as well as liquidity providers.
Future ahead of DEXs
According to the report, there are three main factors that will determine whether DEXs can keep the lead.
Users could choose DEXs to avoid paying transaction fees or get fair token pricings. DEXs must also be able to position themselves as a programmatic and self-custody way of trading cryptocurrency.
Last, but not least: regulatory scrutiny could prove to be a challenge for decentralized trading platforms. Ethan McMahon, Chainalysis economist, stated that the sector is growing in popularity and could attract more attention from watchdogs. This could lead to a decrease in market share.
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