Centralized Crypto Exchanges Had 14x More Trading Volume Than DEXes in 2021
It pays off to be convenient with a hot crypto wallet and an easy ramp to a bank account. Centralized crypto exchanges (CEXes) have demonstrated this with a massive increase in trading volume.
Centralized vs. Decentralized Crypto Exchange Trading Volume in 2021
Compared to 2020’s $1.8 trillion, 2021 saw an increase by 689%, at $14 trillion in total trading volume, according to The Block’s Index.
This index hones down on crypto exchanges that have a track record on accurate trading volume reporting. Despite regulatory hurdles that Binance triggered with its bank-like Lend & Earn program, it still remains the dominant crypto exchange at 65.27% market share. In fact, after Binance increased its employee pool since 2017 by over 2,600%, it gained an important Money Service Business (MSB) license in Canada this week.
The Seychelles-based OKEx is in second place with 17.79% market share. Although not shown in the above chart, in third place is the US-centric Coinbase. On the global stage, Coinbase’s crypto assets amount to 11.3% market share, over double the growth from 2018’s 4.8%, according to brokerage firm BTIG.
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How Are Decentralized Exchanges Doing?
For some, the access to decentralized exchanges (DEXes) is less convenient compared to CEXes. MetaMask—a software ERC-20 wallet that can be easily accessed through a browser extension—is non-custodial (users maintain ownership of private keys), and can connect to any DEX dApp such as Uniswap. However, the funds need to be transferred elsewhere to be withdrawn directly to a bank account. And that elsewhere means a CEX.
Then, there is the matter of high ETH gas fees if one uses Ethereum over Solana, Polkadot, Avalanche and other drastically cheaper smart contract platforms. Due to these costs and inconveniences, DEXes have 14x less trading volume than CEXes, at about $1 trillion for 2021.
However, DEX growth is even more impressive with an 858% increase from 2020. For December 2021, Uniswap is still in a massive lead with 67% DEX market share, at $45 billion out of total $67 billion trading volume.
Extra DEX Steps + Fee Volatility = CEX Dominance
Interestingly, over the course of the year, the DEX trading volume trajectory is downward, by 142% since May’s peak. This can be attributed to Ethereum’s unstable gas fees, which can range up to hundreds of dollars for more complex transactions within DeFi protocols.
Fortunately, Layer 2 scaling solutions like Arbitrum are starting to integrate Ethereum-based dApps to address this issue. For instance, Aribtrum One portal has several dApps available, with drastically lower transaction fees.
Likewise, there is a Loopring tutorial on how to significantly reduce ETH gas fees. Unfortunately, these are all extra steps that equally reduce the convenience factor, securing the dominance of CEXes in the foreseeable future.
Nonetheless, it bears keeping in mind that DEXs can offer the same services with significantly lower costs. Case in point, in July this year, Uniswap achieved 77% of Coinbase’s trading volume with 33x fewer employees.
Will 2022 be the year DEX trading volume surpasses that of CEXes? Let us know in the comments below.