Chainalysis: Decentralized Exchanges Beat Centralised Ones For On-chain Flows
Chainalysis, a provider of cryptocurrency compliance and investigation software to government agencies and businesses, has released new data that shows decentralized exchanges (DEXs) are being used more frequently than centralized exchanges (CEXs), even when it comes to on-chain activity.
The report found that while CEXs still handle the majority of Bitcoin trading volume, DEXs are accounting for an increasingly large portion of on-chain activity. In the first quarter of 2020, DEXs accounted for 16% of all BTC trading volume, up from just 5% in the first quarter of 2019. According to Chainalysis, this growth is driven in part by DEXs becoming more user-friendly, with several popular platforms launching mobile apps and integrating with major fiat-to-crypto gateways like Coinbase.
The Chainalysis’ data also showed that DEX trading activity is concentrated among a small number of platforms. The top 10 DEXes accounted for 92% of all BTC traded on decentralized exchanges in the first quarter of 2020. The leading platform, Uniswap, alone accounted for 60% of all BTC traded on DEXes.
While Chainalysis notes that CEXs still play an important role in the crypto ecosystem, the data suggests that users are increasingly turning to decentralized alternatives as they become more user-friendly and offer greater control over funds. stated
that a lot of the use case for centralized exchanges is going to move over to decentralized exchanges, and I think the most likely thing is we’ll see a slow decline in centralized exchange usage.Ethan MacMahon, Chainanalysis Economist
He added that the report’s data shows that
the majority of cryptocurrency trading activity is now happening on decentralized exchanges.
McMahon said he believes the trend will continue but cautioned that it could be impacted by regulation. He noted that Japan has already put forth regulations that would impact how DEXs operate.
This is not to say that there are no advantages to decentralized exchanges. After all, they are non-custodial, which means that users retain control of their own private keys. This is a major selling point for many cryptocurrency enthusiasts who value privacy and security above all else. Additionally, DEXs offer a wider range of currency pairs than most centralized exchanges. This can be especially helpful for traders who want to buy or sell less popular altcoins.
While there are some advantages to decentralized exchanges, they come with significant drawbacks that may eventually lead to a regulatory crackdown.
Another advantage of decentralized exchanges is that they are more resistant to hacking and security breaches. This is because there is no central point of control for hackers to target. Instead, each user’s funds are stored in their own personal wallet, which is much more difficult to breach. Additionally, decentralized exchanges offer a higher degree of transparency than centralized ones. This is because all trades are recorded on the blockchain, which is publicly accessible. This makes it much easier to track down any potential fraud or criminal activity.
However, these advantages come with some significant drawbacks. For one thing, decentralized exchanges are not as easy to use as their centralized counterparts. This is because they often lack user-friendly interfaces and require a certain level of technical expertise to navigate.
Additionally, decentralized exchanges do not offer the same regulatory assurance that centralized exchanges do. This lack of regulation can be problematic for users who want to trade in a more compliant environment. If DEXs continue to increase in popularity, it is likely that regulators will eventually crack down on them in order to bring them in line with traditional financial institutions.