Dex Volume Surging
We can say that everything is relative. There is also a point where we have to start from.
Let us be realistic before going any further: no matter what the numbers are, they are still a drop in the bucket compared to centralized crypto exchanges.
Most of the transactions done in the world of cryptocurrency are on exchanges such as Coinbase and Binance. These centralized behemoths are basically unrivaled at this point by the decentralized exchanges (DEX). The numbers bear this out.
Nevertheless, the last year was a stellar one for decentralized exchanges. We are seeing a surge in usage.
This should not be surprising based upon what is taking place. A simple fact of the cryptocurrency world is that there are more tokens issued every day. This means the collective pot is growing.
Compared to a year ago, there is more Bitcoin than there was. Every 10 minutes, for the past year, Bitcoin was produced. The same holds true for Litecoin, Ethereum, STEEM, TRON, EOS, and a host of other tokens (obviously issued at different intervals).
At the same time, we saw the creation of many new currencies. HIVE, for example, did not exist a year ago. It was a fork from Steem just a couple months ago, enlarging the total distribution. We are close to seeing another fork that will provide even more tokens.
Notice how I did not compare them to fiat such as USD, EURO, or JPY. For the moment, this is crucial in this conversation.
Centralized exchanges provide an enormous service to the cryptocurrency industry. It is the on and off ramp regarding fiat. Since they are regulated, they are trusted by the governments to operate as money transmitters. This means they can accept and distribute fiat. Here is where we see a great deal of activity.
Since most people enter the world of cryptocurrency by "buying in", the ability to swap fiat for crypto is crucial. The centralized exchanges gained the confidence of the regulators by implementing KYC and AML rules, thus operating similar to other financial entities.
What happens when less people require fiat-to-crypto transactions? Here is where I believe we will see the major push in the decentralized exchanges.
Those who are involved in cryptocurrency already have their trust matters worked out. It is evident they trust systems that have no sole controller. The dealings with the centralized exchanges is a necessary evil for both the use of fiat plus liquidity. Decentralized exchanges tend not to have the volume to allow large trades.
It should not surprise anyone that, at this point, Ethereum is the leader in the clubhouse when it comes to DEX transactions. While not up to the CEX level, there was a large jump.
Since January 2019, Ethereum’s liquidity protocols and applications have increased their market share relative to CEX volumes by 5x, up to 0.6% from 0.12%, according to The Block’s Larry Cermack.
While a .12 percent market share is nothing to write home about, the 5x growth is very encouraging. Exponential growth like this, if it keeps up, can see a marked change in just a few years. What is nothing now could become 10% by 2023 or 2024.
Ethereum’s DEXs have traded over $3B in total volume in the first six months of 2020, compared to the $2.4B in all of 2019. Moreover, DEX volumes have seen a massive spike upwards since the beginning of the year. In January, cumulative weekly volumes averaged around $61M across major DEXs. Only three months later, average volumes increased by 213% to reach ~$193M in March. The biggest increase came from Black Thursday - a day where crypto asset prices were cut in half in response to the COVID19 pandemic - as major DEXs aggregated over $400M in trading volume that week alone. Since then, trading activity has remained steady as Ethereum DEXs average around $184M in weekly volume as of May 2020.
https://decrypt.co/30822/surging-volume-and-near-record-earnings-at-decentralized-exchanges
Another big advantage to the DEX is the fact that they are open, transparent, and permissionless. Anyone with an internet connection can know exactly what is taking place. The same is not true for the DEX world, such as Binance. How much money is Binance making is anyone's guess. Yet, on a DEX, we know exactly what is taking place.
The expansion of the crypto world, especially with DeFi, should help to push the decentralized exchanges to greater levels. For the time being, we will have to deal with a hybrid situation where we are involved in cryptocurrency yet much of what we do is with centralized exchanges.
Over the next decade, I would expect the ratio between the two to shift. As more transactions are conducted in cryptocurrency, the big advantage the CEX have is removed.
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Posted Using LeoFinance
