According to a report by crypto analysis firm Chainalysis, the popularity of so-called decentralized exchanges (DEX) sky high right now. It on chain trading volume on such crypto exchanges has been even higher than on centralized exchanges (CEX) since the beginning of this year, such as Binance and Coinbase†
DEXs are doing well
It is important to clarify first of all the fact that centralized exchanges are order book system too off chain facilitate transactions. In practice, this means that only a small percentage of trade transactions on such exchanges take place on-chain, i.e. on the actual blockchain of a crypto network. DEXs build on smart contracts to process transactions and these are therefore to a large extent on chain†
According to Chainalysis report In April of this year, at least $175 billion worth of crypto was traded on-chain via centralized exchanges. DEX’s on-chain trading volume exceeds this by a wide margin. At least $224 billion was traded on decentralized exchanges during that same period.
The report also states that the rise of the decentralized finance (DeFi) sector has ensured that at least 75% of all on chain crypto transactions take place on these decentralized exchanges.
Big DEXs like Uniswap dominate the market
Examples of well-known DEXs are UniSwap and PancakeSwap. Only a handful of the largest DEXs are responsible for as much as 85% of all on-chain trading activity on DEXs. This is simply because large DEXs with more liquidity can guarantee better price stability, according to Chainalysis.
“Higher liquidity DEXs may offer more stabilized pricing for even the largest market participants, but smaller pools may struggle to do the same without causing significant price shifts – an unappealing proposition to consumers and liquidity providers alike.”
According to Chainalysis, the question is whether DEXs can maintain this lead over centralized exchanges. In particular, the uncertainty regarding regulations from governments could throw a spanner in the works. Regulation could be quite an obstacle for decentralized exchanges in the future, which centralized exchanges may be able to deal with better.