DeFi Now Holds Nearly Double the ETH Available on Exchanges

Blockchain statistics and data analysis company, Glassnode, has released a report showing that there is almost double the amount of ETH being locked in smart contracts via DeFi than there is ETH being held on centralized exchanges. The news has been received as quite significant, considering that it was only a year ago when centralized exchanges seemed to dominate the crypto landscape.

This is perhaps the clearest indicator that DeFi is being favored over CeFi among crypto users. It is also in line with the growing sentiment suggesting DeFi Summer 2.0 is around the corner, with DeFi now featuring an estimated 2 million+ users. 

ETH is Getting Withdrawn From Centralized Exchanges

Glassnode’s statistics found that centralized exchanges currently hold 12% of the ETH supply, while smart contracts hold almost double that amount at 22.8%. As DeFi projects run almost entirely on smart contracts, the conclusion that Glassnode drew is that this ETH can be found on DeFi platforms.

It is likely that users are rapidly taking their money out of CeFi exchanges and bringing them over to DeFi platforms, as part of liquidity pool contributions. Or, it could mean that more people are entering DeFi exchanges and mainly ignoring CeFi altogether. 

Glassnode’s report shows that CeFi ETH holdings have been on a downward spiral for some time now, and that the supply of ETH on smart contracts has been consistently increasing. The major turning point occurred around mid-September 2020, when the ETH supply on smart contracts was practically equal to the centralized exchange supply.

Afterwards, the split began; something similar happened in mid-January 2021, where there was a huge jump for smart contract supply, and a huge dip for centralized exchange supply. Interestingly, mid-September was around the time that the push toward Ethereum 2.0 (AKA Serenity) was released, and mid-January was the time when ETH surpassed its early 2018 all-time-high of $1,275. 

Keep in mind that Glassnode’s statistics are not comparing centralized exchange supply to decentralized exchange (DEX) supply; rather they are comparing centralized exchange supply to all Ethereum-based DeFi. This does include exchanges, but also lending, insurance, gambling, savings, derivatives, synthetic assets, games, and liquidity pools. DeFi is now an all-encompassing ecosystem, and this data shows just how much that ecosystem is flourishing. 

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What it Means: More ETH Locked Up in DeFi

One factor that could be driving DeFi to these heights is that it aligns more with the beliefs of crypto users and enthusiasts. Many treat crypto as a means of gaining financial independence and autonomy from governments and economic conglomerates such as banks and hedge funds.

The idea that platforms now exist that run without the need for these organisations to act as intermediaries is deeply enticing. It not only gives users more control over their money, but it shows that large fiat corporations are not as necessary as they once were. 

Crypto has always been about the promotion of peer-to-peer financial activity, where people can band together and manage their finances on their own terms, and DeFi is the most robust and impressive display of this ethos. It redefines how traditional financial tools function and operate. 

Another possible reason for this influx is that DeFi is simply more approachable for those who are underbanked, meaning people who can rarely use their fiat bank accounts. An estimated 5.4% of American households are unbanked for example—and many believe DeFi is here to help.

Do you think that in the future, centralized exchanges will become obsolete, or at least less common? Let us know in the comments below.