Decentralized Platforms Comprise 40% of Crypto Exchanges, Report Reveals

The World Federation of Exchanges (WFE) recently released a study indicating that 40% of cryptocurrency trading platforms operate on a decentralized framework, utilizing distributed ledger technology. On the flip side, the remaining 60% are reliant on central limit order books (CLOBs), mirroring the structure seen in regulated trading platforms.

Out of a total of 500 crypto trading venues evaluated in the study, they offer a diverse range of crypto-centric products and services. The research garnered feedback from a plethora of these platforms, providing an in-depth look into the preferences of retail and institutional traders.

Many of these platforms, the report found, are dependent on off-chain CLOB setups for elements like price oracles, showing quotes, and executing orders. Their usage of blockchain is primarily limited to finalizing transactions and holding assets, ensuring traders don’t always directly engage with the blockchain, leading to potential savings in transaction costs. Notably, exchanges that adopt such configurations are termed as centralized exchanges (CEXs).

The WFE’s study revealed a higher retail appetite for crypto-centric services and products compared to institutional players, with the sole exception of custody services. The bigger institutional players, however, displayed a pronounced interest in crypto custody solutions. The varying demands for specific products by each investor group hint at a possible reduced awareness among retail clients regarding investor safeguards.

In terms of liquidity and customer traction, CEXs experience a more vibrant trading scenario, despite decentralized platforms typically offering reduced transaction charges. The study also pointed out discrepancies in pricing for identical trading pairs across various platforms, presenting arbitrage possibilities. Such price variances, however, may signify an underlying inefficiency in the cryptocurrency marketplace.

Lastly, the report observed that, even with many countries advocating for Know Your Customer (KYC) protocols, a consistent shortfall is seen in their adoption by both CEXs and decentralized platforms. This can largely be attributed to the absence of a standardized crypto regulatory framework.