The report touches on the growth of different cryptocurrency exchanges across the industry in general, and splits them into 6 broad categories of crypto exchanges for evaluation.
Chainalysis recently evaluated the growth of cryptocurrency exchanges in the past year with its latest report – Cryptocurrency Exchanges in 2021: A Competitive Landscape Analysis. The report concludes that the cryptocurrency exchange landscape has become extremely competitive, and the ability to innovation and scale is crucial as the market consolidates.
The report saw three definitive takeaways of the market. First, Decentralised Exchanges, or DEXes, have become extremely popular with the unprecedented growth of Decentralised Finance (DeFi). Second, large-sized centralized exchanges still have an important role to play in the cryptocurrency world. Lastly, Over-The-Counter (OTC) growth indicates that more professional and institutional investors are moving into the space.
DeFi overtakes CeFi
The total value received by DEXes ballooned from $10 billion in July 2020 to $368 billion in May 2021 and sits at $143 billion in September 2021. DeFi transactions range around $26,000 on average compared to $12,000 for centralized exchanges, and trade activity eclipses their centralised counterparts on certain occasions.
The reason for the disparity is attributed to DeFi being more popular in countries with bigger, more established cryptocurrency markets. David Gogel, Growth Lead of popular decentralized exchange dydx, explained that most DeFi users are established cryptocurrency investors or traders with large funds, or are investing money on others’ behalf which explains the higher median transaction size.
Centralised Exchanges are the face of cryptocurrency trading
While large centralised exchanges show modest growth compared to decentralised exchanges, they are deemed to play an important role. As cryptocurrency adoption grows, new users will typically acquire their first cryptocurrency through centralised exchanges, as these are typically the easiest services to exchange fiat currency for different types of cryptocurrency. Experienced traders and DeFi users who want to exchange cryptocurrency for cash will also rely on the ease of their services.
Institutions jump on the bandwagon with OTC growth
The growth in value received for large OTC brokers grew by 250% between August 2020 to August 2021. Such OTC growth suggest that more professional and institutional investors are moving into the crypto space, as OTC brokers frequently help such users execute extremely large trades that would strain the liquidity of open exchanges.
Other takeaways of the report also highlight the fact that the number of unique crypto assets available plays a big role in an exchange’s business longevity, and having more unique assets available generally correlates with higher transaction volume. Ultimately, innovation and scale are essential to differentiating and growing in rapidly consolidating industry.