Comparison of market shares of centralized vs. decentralized exchanges

Centralized exchanges account for 80% of all crypto-assets exchanges. Yet the make up 99% of the total trading volume on exchanges.

Market share of Centralized vs. Decentralized exchanges

Source: Tokeninsight

Centralized exchanges

Demand from ventures that issued an ICO for listing on the main exchanges (Binance, Huobi, OKEx, Kraken, etc.) is high. On the one hand, the benefits for projects that are listed on one of the main exchanges are significant, in terms of recognition, exposure, and access to liquidity. On the other hand, one of the business objectives of exchanges is to offer a maximum number of interesting tokens that they are confident will create a market that is active enough. Hence, some exchanges have implemented admission processes, including token information disclosure requirements. ICO details and success criteria are often analyzed by the exchanges as a proxy for evaluating the attractiveness of tokens. Their focus is on avoiding listing scams and weak projects that have a high probability of failure—they, of course, want to protect investors who are using their platform, from being trapped and having a bad experience. Very often, a voting mechanism is deployed for investors and users of the exchange platform to nominate (in priority order) which tokens they would like to see listed on the exchange.

Some exchanges, such as Coinbase, have begun proposing a custodian service; holding and securing crypto-assets for its clients. A few agitators are trying to raise public concern about exchanges taking control of their crypto-assets, not the least due to repeated hacks of exchanges accounts. The attitude that “it’s on the blockchain or it did not happen” or “if you don’t have your private key, you have no bitcoin” is quite important.

Decentralized exchanges

Despite the noise decentralized exchange projects still make (they represent one fifth of total number of platforms), their relevance in the overall traded volumes is still negligible (see figure 7). The evolution of these figures will tell a lot in the coming months.

Some sources have highlighted that the rising cost of compliance for off-chain exchange platforms has resulted in decentralized exchanges having a competitive advantage.

Exploring this trend is, in fact, very interesting. Decentralized exchanges cannot be stopped; governments cannot close them, they are available 24/7 to any citizen on earth to use, with no identity check, no financial cap, and without questions regarding the origin of the funds. Hence, their use is likely to be prohibited by financial regulators, if not completely, then at least as far as their jurisdiction applies.

It is not clear whether individuals will take personal responsibility for acting on these exchanges, aware of the concern that ultimately when attempting to return funds to the controlled “real world,” they may face difficulties in proving their legitimacy when questioned by traditional players and authorities. In turn, this may lead to a deepening of the separation between the legacy fiat environment and the new cryptocurrency environment.

Centralized exchanges are investing in the field of decentralized exchanges—with Binance being the flagship of this move. What this means is that people will be able to exchange assets directly from their hardware wallets, thanks to a sort of over-the-counter facility.

Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.

31 views0 comments