Citi Says Decentralized Crypto Exchanges Are Gaining Market Share From Centralized Peers

Increased crypto regulation could drive users to decentralized platforms, the bank said.

AccessTimeIconOct 3, 2022 at 12:15 p.m. UTC
Updated May 11, 2023 at 4:22 p.m. UTC

Decentralized cryptocurrency exchanges (DEXs) have grown faster than centralized exchanges (CEXs) over the past two years, Citigroup (C) said in a research report Thursday. The gap is likely to widen as users move away from centralized platforms to avoid their more onerous know-your-customer procedures.

DEXs are blockchain-based apps that coordinate large-scale trading of digital assets between many users by using automated algorithms, instead of the traditional approach of acting as a financial intermediary between buyers and sellers.

DEXs offer distributed revenue, like dividends, to token holders and the ability to self-custody funds, the report said. Once the trading rewards are included, these exchanges have comparatively lower fees than platforms such as Coinbase Pro, Citi added.

One of the main differences between DEXs and CEXs is the custody of funds, the bank said, as there is a risk in storing assets with CEXs. The bank highlighted the collapse of lending platform Celsius Networks and broker Voyager Digital as examples.

One potential driver for DEX volumes in the near term is an increase in regulation, the note said. As crypto regulation develops more broadly, with expanded reporting requirements, users could begin to migrate to DEXs from “KYC-heavy CEXs,” it said, referring to “know-your-customer” requirements. The regulatory landscape is expected to become more “onerous,” and more users are likely to switch to decentralized exchanges from centralized ones, the note added.

Citi says DEXs are responsible for 18.2% of spot-trading volume, noting that volumes have remained resilient at over $50 billion a month, with total revenue of $3.6 billion in the last year. Uniswap continues to dominate, accounting for around 70% of total DEX volume, and could distribute up to $250 million to token holders if a recent governance proposal is passed.

“This could mark a key pivot for a foundational DEX within the DeFi space,” the bank said, referring to decentralized finance, which is an umbrella term used for lending, trading and other financial activities carried out on a blockchain without traditional intermediaries.


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Will Canny is CoinDesk's finance reporter.

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