Crypto exchanges have been talking about the need for regulatory clarity for years, saying uncertainty over the basics like whether or not cryptocurrencies are securities is holding the industry back and putting them at risk of crossing lines they don’t. can’t see.
But there’s another reason why centralized exchanges like Coinbase, FTX, Gemini, Kraken, and others want the kind of clear regulation that two U.S. senators proposed on Tuesday, June 7, and that various government agencies have been working on since the executive order. executive on President Joe Biden’s cryptography. in March.
See also: Senate Crypto Bill Debuts and Crypto Industry Takes Big Wins
They want protection against decentralized finance, also known as DeFi.
Read more: Biden’s executive order set to accelerate crypto policy
If you go by the numbers, the decentralized exchanges (DEXs) at the heart of DeFi are proving far more popular than centralized exchanges (CEXs), according to a new report from blockchain data firm Chainalysis.
Currently, DEXs hold about 55% of the market, measured by trading volume, and CEXs 45%; in other words, the DEXs ate the CEX’s lunch.
Does this mean crypto is headed for a decentralized future?
A new crowd
If you dig, centralized exchanges are becoming an increasingly important part of the crypto industry, despite the boom that made 2021 the year of DeFi.
A few factors are at work here; more specifically, who uses exchanges.
The low fees and anonymity of DEXs—little, if any, collection of the personal data needed for anti-money laundering (AML) compliance—make them perfect for day traders, who run hundreds, even thousands of transactions per day, sometimes with the use of automated systems. programs. The volatility of strong bull or bear markets gives these professional traders more opportunities.
However, if you look at the actual growth of crypto users, this favors CEX: the number of new buyers – who are much more likely to buy and hold a few cryptocurrencies, giving them less of an impact on volume transactions – growing rapidly.
According to the new US Crypto Consumer Study by PYMNTS, 23% of US consumers have purchased or held crypto in the past 12 months. This represents nearly 60 million people, about 18 million more than a year ago.
Read more: The data point: 23% of US consumers owned cryptocurrency in 2021
And since DEXs are not easy to use, only those who engage in serious and regular trading will change. Some of the biggest advantages of centralized exchanges, besides their simple user interfaces, are their support services and strong crypto custody capabilities in an industry plagued by stories of huge hacks that are massively in DeFi projects.
Additionally, this trade volume ignores players like PayPal and Block, which are primarily used by first-time buyers.
Who are you?
Second, there is the growing global pressure to regulate all of crypto, including the decentralized parts.
While DeFi has a reputation for being deliberately difficult to regulate, proponents of anonymity seem so under threat as regulation comes into force around the world and in the United States.
A growing number of financial regulators like the Financial Action Task Force (FATF) and the Bank for International Settlements (BIS) have said that DeFi projects in general are not as decentralized as they claim – d From a regulatory perspective, there is usually someone like the developers or large token holders who can be held to account.
You might like: PYMNTS DeFi Series: What is DeFi?
Centralized exchanges are already hampered by regulators. Note the $100 million fine BlockFi just paid the Securities and Exchange Commission (SEC) and state regulators for its crypto lending program.
These crypto lending programs are something CEX copied from DeFi, something the SEC didn’t even suggest was its responsibility when laggard Coinbase was tipped off last year.
This is one of the reasons CEXes are so eager to put in place tough regulations: they will provide a level playing field.
And DEXs can probably be regulated. As a segment of the industry, they are actually quite centralized. Just five — Uniswap, SushiSwap, Curve, dYdX and 0x Protocol — account for 85% of DEX trading volume so far, Chainalysis said.
Compare that to the top five CEXs by on-chain trading volume: Binance, OKex, Coinbase, Gemini, and FTX accounted for about half of all on-chain CEX trading volume.
Also, on-chain is a key word there, Chainalysis said, noting that it only measures transactions sent to and from CEXs, which have large off-chain order books that cover large institutional clients like hedge funds.
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Hope For Regs Centralized Crypto Exchanges
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