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State of the Market

Intro

Centralized exchanges are gradually losing popularity and market share due to some fundamental issues with their operating model. The issue that raises the biggest concern is the security of users’ assets. As most crypto investors are aware, there have been cases of users losing funds stored on some of the most popular and reputable centralized exchanges as well as entire exchanges disappearing with users' funds. These events have played a big role in the change of public perception regarding CEXes and the increasing lack of trust towards companies that essentially keep your funds hostage.

Current Market

Looking at the exponential growth of digital exchanges and their heightened popularity, it is safe to say that they are by far the most popular business model in the crypto industry. As cryptocurrencies become more mainstream, users will be looking for a convenient and simple way to exchange assets. Since the beginning of September 2021, the crypto market cap increased from $2.132 Trillion to $2.671 Trillion in just three months. The top centralized exchanges have reported a combined volume of $14 trillion in 2021, this figure is 689% higher than the reported 2020 volume.
Another reason for the growth of cryptocurrencies is the number of people who are seeking an alternative to traditional markets in a time of growing uncertainty and inflation. This influx of new investors creates an ideal market for exchanges to thrive in. For example, Coinbase is a company that was first created as a digital platform for transactions with cryptocurrency and eventually developed into a full-fledged exchange that enables users to trade the most popular digital assets.

CEX vs DEX: a power shift?

The following table illustrates the increase in the volume of transactions on the most popular CEXes and DEXes:

CEX volume vs Blockchain TXs

CEX
2020
2021
Binance
$29.178B
$33.508B
Crypto.com
$1.836B
$4.492B
Coinbase
$5.813B
$7.217B
Kraken
$1.552B
$1.807B
Kucoin
$2.013B
$3.810B
Total
$40.392B
$50.834B (+ ~25%)
DEX
Uniswap (v3)
$1.611B
$3.481B
PCS
$0.8418B
$2.446B
Trader Joe
$0.584B
$0.518B
Uniswap (v2)
$0.584
$0.608B
Sushiswap
$0.349B
$0.391B
CurveDAO
$0.142B
$0.234B
Quickswap
$0.081B
$0.129B
Compound
$0.091B
$0.038B
Total
$4.283B
$7.845B (+ ~83%)
Blockchains (transactions per day)
Ethereum
1,225,704
1,280,926
BSC
7,936,241
15,103,274
Avalanche
116,300
549,246
Polygon
6,848,312
3,805,326
Total
16,126,527
20,738,772 (+28%)
  • DEXes are growing 3x faster in relation to CEXes. Their volume relative to CEXes increased from ~10% to ~15,5% meaning a relative growth of approximately 55%
  • If DEXes sustain the current growth rate, December 1st, 2022 could see DEXes holding almost 70% of CEXes daily volume (DEXes projected volume: $83 Billion, CEXes projected volume: $124 Billion)
  • Looking at the pace at which CEXes are growing, it is safe to conclude that there is undoubtedly space for new platforms to enter the market
  • DEXes still account for a small fraction of the total volume of the entire market therefore now is the perfect time for a new player to establish themselves amongst the top platforms