Decentralization is one of the cornerstones of the crypto industry. With blockchain technology as the backbone, blind trust from a central party is no longer required. However, a development has taken place in the market of centralized crypto exchanges over the years that contradicts the basic principle of decentralization. The big players control a large part of the market. We’ll look at exactly how this works in this article.
Crypto exchange monopolies
Clara Medalie, a researcher at analytics firm Kaiko, said in a message on X, formerly known as Twitter, on September 8 that 90 percent of liquidity in the crypto market is concentrated on just 8 centralized exchanges.
— Clara Medalie (@Clara_Medalie) September 8, 2023
Specifically, Kaiko analyzed the market depth and market volume of the 20 largest exchanges and found that the eight largest exchanges accounted for approximately 92 percent of the market depth and 90 percent of the volume.
Market depth is the size of the order book on a crypto exchange. A deep order book means that there are many orders at different price levels, indicating liquidity and stability in the market. Trading volume represents the total amount traded during a specific period.
According to Kaiko, Binance, the world’s largest crypto exchange, accounts for 64.3 percent of global spot trading volume. Furthermore, it is responsible for 30.7 percent of the total market depth.
Binance’s share of spot trading volume was still 28.3 percent in 2021. The overall share of the eight largest stock exchanges rose less sharply in the same period: from 84.1 to 89.5 percent.
The 8 exchanges in question are as follows (ordered from largest to smallest): Binance, Coinbase, Kraken, OKX, KuCoin, Bybit, Binance US, Bitfinex.
Threat to the crypto market?
The data is somewhat shocking as the number of crypto exchanges operating is huge. According to CoinGecko, the counter is currently on 772 different exchanges worldwide.
According to Kaiko, the highly concentrated market could lead to higher volatility. Another problem is that the possible failure of one of these exchanges will have a drastic impact on the entire market. This was also the case, for example, with the implosion of FTX.