Monthly Analysis Report: Centralized vs. Decentralized Exchanges
The cryptocurrency industry is experiencing rapid growth, attracting a larger user base every day. However, this growth presents a critical decision: where should you buy, sell, and trade your digital assets? The two main options are Centralized Exchanges (CEXs) and Decentralized Exchanges (DEXs), each with their own unique features and advantages.
This report aims to provide a clear and concise comparison of CEXs and DEXs, cutting through the confusion. We will delve into statistics to uncover their market share and potential, analyze their strengths and weaknesses, and discuss the factors driving the rise of DEXs.
By gaining an understanding of the nuances of each exchange type, you can make well-informed decisions about your cryptocurrency journey. So, let’s dive in.
Overview of Decentralized Exchanges (DEX): A January Analysis
In January, DEX exchanges experienced a significant 10% decrease in valuation compared to December. This indicates a shift in investor interest and a rise in the outflow of digital assets. The increased volatility in the market affected the volumes of inflow and outflow, resulting in a decrease of over 5%. This suggests that investors are more inclined to hold onto their digital assets.
Total Value Locked (TVL):
Despite the volatility in crypto prices, the Decentralized Financial (DeFi) system exhibited growth, increasing from $117.54 billion at the beginning of the month to $121.435 billion by January 31. This marks a 3.313% Month-on-Month (MoM) increase.
Within the DeFi sector, different subparts displayed mixed sentiments and volatile price actions. Lower cap chains outperformed top chains in terms of monthly gains, with some experiencing returns exceeding 2X in valuation.
DEX Volume Analysis
Entering 2024 with high volatility, the crypto market witnessed significant price fluctuations. When examining the Month-on-Month (MoM) scenario, DEX volume registered a 13.8596% decrease, dropping from $84.49 billion at the beginning of the month to $72.78 billion by month-end.
Among the top five DEXs, Ocra experienced the highest loss, plummeting by 34.081%. PancakeSwap followed with a 16.458% loss, while Uniswap and Maker PSM recorded corrections of 7.746% and 7.14%, respectively. On the other hand, Curve maintained stability, posting the least loss at 2.941%. Collectively, other DEXs experienced a 32.023% decline, indicating a challenging start to the year.
DEX Share Volume:
Despite the drop in volume, Uniswap secured the highest market share among the top five, surging from 57.63% to 61.71%, marking a notable 4.08% increase. Curve showed resilience with a 0.52% rise, making it one of the two DEXs with a positive month.
Following this trend, Curve also displayed a rise of 0.52% in the chart, placing it among the only two Decentralized exchanges (DEX) to record a positive month in this subpart of the market. On the other hand, Orca recorded the highest correction among the top five exchanges, with a loss of 2.73% in value.
DEX To CEX Spot Trade Volume:
The DEX to CEX spot trade volume, which calculates the percentage by dividing the monthly Decentralized (DEX) volume by the Centralized exchange (CEX) volume, recorded a decline in volume during the first month of the year by 0.18%. It decreased from 7.88% to 7.70% by January 31.
DEX Mechanism Volume Share:
Understanding the mechanisms within Decentralized Exchanges (DEX) provides valuable insights into the market. The DEX mechanism volume share encompasses the Constant Product Conservation Function (CP), Hybrid mechanisms that combine different approaches, and Central Limit Order Books (OB). Let’s break down their total volume share.
The Constant Product (CP) subpart witnessed a rise from 78.21% to 81.5%, marking a substantial 4.206% increase. The Order Book experienced the highest surge, jumping by 14.772% from 0.88% to 1.01% in the past month. However, Hybrid mechanisms faced a downturn, recording a loss of 16.355% during the same period.
Centralized Exchange Overview (CEX):
Centralized exchanges faced significant fluctuations in valuations due to increased price volatility. This resulted in several major exchanges ending the month in the red. Binance, in particular, experienced a significant fall in the initial month of the year due to persistent regulatory pressure throughout 2023.
Proof-of-Reserve (PoR):
The current valuation of PoR stands at $71.388 billion, with Bitcoin dominating token allocation at 34.22%. USDT follows closely behind with a share of 26.29%. Ethereum secures the third spot with a share slightly above 10% (10.23%), while BNB and AETH hold 4.19% and 2.62%, respectively. Other tokens collectively hold 22.46%.
The top five exchange reserves in the industry are dominated by Binance, with an aggregated balance of $27.9 billion, accounting for 39.082% of the total valuation. OKX stands second with a balance of $5.62 billion, followed by Deribit and Crypto.Com with values of $1.51 billion and $1.29 billion, respectively. Bitstamp rounds out the top five with a value just under $1 billion at $970 million.
Revenue Insights
Centralized exchanges reported 4 out of 7 green days, 2 out of 7 red days, and 1 neutral day on the daily Profit and Loss (P&L) over the past week. The highest single-day P&L gain occurred on January 29th at $1.644 billion, contributing to a cumulative P&L of $1.523 billion.
However, the crypto industry concluded the month with a red day, recording a loss of $1.649 billion in daily P&L and a cumulative gain of $298.335 million in valuation.
Inflow and Outflow Analysis
The crypto market experienced significant volatility, leading to substantial fluctuations in the values of major cryptocurrencies. Bitcoin exchange inflow averaged 40,349.290 daily for January, with the highest inflow recorded on January 12th and the lowest on the 21st.
Bitcoin exchange outflow averaged 40,389.870 daily, indicating a minor increase in total volume. Similar to the inflow, the highest outflow occurred on January 12th, with the lowest on the 21st.
Exchange Volume Ranking
When examining the top cryptocurrency spot exchanges, Binance secured the top spot with a score of 9.9, an average liquidity of 886, and 400 supported coins. Coinbase Exchange followed with a score of 8.4, average liquidity of 734, and 239 coins, despite fewer weekly visits. Kraken, KuCoin, and Bybit rounded out the top five with their respective scores and average liquidity.
Conclusion
Decentralized exchanges (DEX) are still in the early stages, holding roughly 15% of the total market share. The rising volatility in the industry and constantly changing rules and regulations have started pushing investors towards DEXs.
Although both exchanges have their own advantages and disadvantages, it is highly recommended to approach your trades with caution, as exchanges are not liable for any transfers made by the crypto holder.