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Decentralised exchanges grow faster than centralised ones

By Andreas Ismar

01:48, 10 November 2021

Decentralised crypto exchange becoming more popular
Decentralised crypto exchange becoming more popular amid the rise of decentralised finance - Photo: Shutterstock

Decentralised cryptocurrency exchanges are becoming more popular, with the number of such platforms topping centralised exchanges as well as recording bigger transaction value.

As of August, the number of active decentralised exchanges reached over 200, while centralised ones dipped below 100, report by blockchain data firm Chainalysis showed.

“DEXes (decentralised exchanges) have become extremely popular, which coincides with the explosive growth of the DeFi (decentralised finance) category in general,” the report said.

“The activity of these decentralised, non-custodial platforms was dwarfed by centralised exchanges as recently as last year, but DEXes have since caught up and in some months surpassed centralised service transaction volume by giving users greater control over their assets and access to new types of trades.”

Bigger transaction value

Total value received by decentralised exchanges grew from over $10bn in July 2020 to a peak of $368bn in May. In September, the figure stood at just below $143bn.

“We see that DEX users carry out much larger transactions than centralised exchange users — the average DEX transaction is over $26,000 worth of cryptocurrency versus over $12,000 for centralised exchanges, while the median for DEXes is just over $900 versus $150 for centralised exchanges,” Chainalysis said, referring to August transaction.   

“This is likely because DeFi is also more popular in countries with bigger, more established cryptocurrency markets, which also tend to be wealthier countries.”

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Centralised exchanges still crucial

In spite of the rapid rise of decentralised exchanges, centralised platforms remain crucial, both for new users and experienced traders to convert their cryptocurrency into fiat money.

“As cryptocurrency adoption grows, most new users will acquire their first cryptocurrency through centralised exchanges, as these are typically the easiest services to exchange fiat currency for different types of cryptocurrency.”

“Furthermore, even experienced traders and DeFi users who want to exchange cryptocurrency for cash will need to rely on these services.”

Growth of cryptocurrency exchanges by typeGrowth of cryptocurrency exchanges by type - Credit: Chainalysis

Competition intensifies

As competition intensifies – the number of active exchanges dropped to 672 as of August compared with a peak of 845 just 12 months earlier – innovation and scale “are the keys to differentiating and growing in what has recently become a consolidating industry.”

“DEXes represent innovation in cryptocurrency exchanges…The centralised exchanges that continue to grow, on the other hand, appear to be those offering the widest variety of assets, which keeps them attractive to the most active traders,” said Chainalysis.

Despite the move to decentralised exchanges the Chainalysis report shows that the big beasts of the crypto world still dominate transactions. "Overall, the fastest-growing exchange categories tend to devote most of their transaction volume to bitcoin or ether. This is relatively unsurprising given that bitcoin and ethereum are the two most popular cryptocurrencies for investment."

Read more: Token technology set to disrupt 8trn global bond market

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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