The exchanges which are the most innovative or with a wide variety of offerings or offering crypto-to-fiat and vice-versa conversion can thrive the most.
Chainalysis’ report named ‘A Competitive Landscape Analysis on Cryptocurrency Exchanges’ from November 2021 has revealed that Decentralized Exchanges (DEX) are growing faster than Centralized Exchanges (CEX).
It has studied the trends from August 2020 to August 2021.
Category With Most Number of Exchanges
The total number of active exchanges peaked in August 2020 at 845. A year later in August 2021, the tally was 672.
Since 2019, DEXes are on a roll observing sharp rises. But, in the 2nd quarter of 2021, nearly all kinds of Cryptocurrency Exchanges declined.
Graph Legend Crypto-to-Crypto Exchanges: C2C, Crypto-to-Fiat: C2F, High-Risk Exchanges (HRE): those with minimal KYC requirements, Small Exchanges: those with under $10 million in cryptocurrency value received between August 2020 and August 2021, Over The Counter Exchanges: OTC, Other Exchanges: exchanges that are nominally C2F but whose users treat them as C2C
On a granular level, Large DEXes, Large HRE, and Other Exchanges Large grew the most. They almost tripled since January 2019.
Small exchanges across all categories showed a decline. It means that niche players are not able to compete well with their mass-market peers.
On the other hand, moderate but substantial growth was observed among Large OTCs, Large C2F exchanges, and Derivatives Exchanges.
Exchanges By Value Received
Large DEXes outshine all the categories when it comes to Value Received between August 2020 and August 2021. At their peak in May 2021, they received $368 billion.
In percentage terms, the Derivatives Exchanges category outran everyone with a mind-boggling 686% of growth in TVL, despite their number.
Small Exchanges saw a decline in the value they received.
Transaction Sizes on Different Exchanges
The average Transaction on DEXes is over $26,000 worth of cryptocurrency versus over $12,000 for CEXes. The median for DEXes is just over $900 versus $150 for CEXes.
It is because Decentralized Finance (DeFi) is more popular among experienced traders or investors who trade in large quantities. Moreover, DeFi applications are used more in countries with bigger and well-established crypto markets, which also tend to be wealthier.
The moderate growth of CEXes suggests they are still important, especially to the new crypto adopters.
Furthermore, experienced traders and DeFi users rely on these services to exchange cryptocurrency for cash.
OTC growth can be attributed to large professional and institutional investors moving into the space.
Most Traded Assets
Unsurprisingly, the fastest-growing exchange categories have larger transaction volumes of Bitcoin or Ethereum.
A notable exception are Derivatives Exchanges, the fastest-growing category by Value Received, which have stablecoins as their most traded asset. Similar is the case for Large Exchanges in the “Other” category and for Large C2C Exchanges. The likely reason is that these exchanges cater to experienced traders and don’t allow on-platform conversion into fiat currency.
Innovation and Scale are the Keys
DEXes constitute the innovative segment. During some months, the volumes on these non-custodial platforms even surpassed those of CEXes.
The CEXes that continued to grow offer the widest variety of assets possible to stay competitive.
But C2F Exchanges remain the go-to platform for new users.
Summarizing the Findings of the Report
- C2F Exchanges are important for crypto adoption as they cater to new users and also help experienced traders in converting crypto to fiat.
- Users are moving to DEXes, allowing them greater control over their assets.
- Small niche players are finding it difficult to survive.
- Innovation and Scale can help exchanges stay competitive.
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