DEXs Have Grown the Most as Competition Among Crypto Exchanges Intensifies: Chainalysis

The majority of DEX users are professional crypto traders looking for “new sources of alpha,” said one analyst.

Nov 9, 2021 at 2:00 p.m. UTC
Updated Nov 9, 2021 at 10:51 p.m. UTC

Muyao is a reporter on the markets team. She is based in Brooklyn, New York. She owns a marginal amount of bitcoin.

Decentralized exchanges (DEX) have grown massively since 2019, while the number of active exchanges – whether centralized or decentralized – has dropped in the same time period, according to Chainalysis’ latest report.

This finding, which the blockchain data firm published Tuesday, showed that as cryptocurrency exchange competition has intensified, the crypto market – especially large, sophisticated crypto traders – has favored exchanges with high innovation and scalability.

“DEXs have become extremely popular, which coincides with the explosive growth of the DeFi (decentralized finance) category in general,” the report concluded.

The number of active DEXs has climbed significantly since 2019, according to Chainalysis, but the monthly number of active cryptocurrency exchanges dropped to 672 in August 2021 from a peak of 845 in August 2020.

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Credit: Chainalysis

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Credit: Chainalysis

The Chainalysis report separated exchanges into six categories: centralized exchanges, DEXs, high-risk exchanges with few know-your-customer (KYC) requirements, over-the-counter (OTC) brokers and derivatives exchanges – based on their business models and technical infrastructure.

As a result, the blockchain data firm also reported that the number of large DEXs and the total value they have received have grown the most by far since August 2020.

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Credit: Chainalysis

“We see that DEX users carry out much larger transactions than centralized exchange users,” the report said. “This is likely because DeFi is also more popular in countries with bigger, more established cryptocurrency markets, which also tend to be wealthier countries.”

David Gogel, growth lead at popular DEX dYdX, told Chainalysis in the report that the majority of DeFi users are “established cryptocurrency investors or traders” seeking “new sources of alpha.”

Centralized exchanges: Still important

The report also noted that despite the DEXs’ growth, large-sized centralized exchanges remain an important market player.

Large centralized exchanges, including derivatives, spot, fiat-to-crypto and crypto-to-crypto, grew significantly in value received between August 2020 and August 2021.

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Credit: Chainalysis

“As cryptocurrency adoption grows, most new users will acquire their first cryptocurrency through centralized exchanges, as these are typically the easiest services to exchange fiat currency for different types of cryptocurrency,” the report said.

Another interesting trend is that a larger number of unique crypto assets available on a platform correlate with higher transaction volume. But bitcoin and ether remain the most traded tokens on exchanges overall.

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Credit: Chainalysis

“The centralized exchanges that continue to grow appear to be those offering the widest variety of assets, which keeps them attractive to the most active traders,” the report added.

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Muyao is a reporter on the markets team. She is based in Brooklyn, New York. She owns a marginal amount of bitcoin.

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Muyao is a reporter on the markets team. She is based in Brooklyn, New York. She owns a marginal amount of bitcoin.

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