Are Users Pivoting to DeFi Trading? A Closer Look Into CEX Vs. DEX Numbers

Bitcoin started as a technical experiment over 10 years ago. Since then, the world’s financial markets have undergone major changes. At the heart of the digital currency revolution is the blockchain technology that created Ethereum, the first ever smart contract platform.

Over the last few years, the Ethereum network has become a key driver in providing users with the ability to interact in a truly decentralized way. Decentralized exchange or DEX is part of a growing set of protocols on the Ethereum blockchain and is gaining significant traction. However, especially due to the advantages of the starters, CEX or centralized exchanges continue to improve their performance despite the proliferation of DEX in the field.

The battle between the two became even more pronounced in 2021 with the advent of other, more sophisticated smart contract platforms. However, it is undeniable that both centralized cryptocurrency exchanges and their decentralized counterparts are one of the most essential means of trading.

Coinbase and CEX Narrative

Coinbase, for example, was a force to consider. It is one of the most reputed consumer centralized cryptocurrency exchanges in the world. The company has made history after becoming the first company in the industry to be listed on Nasdaq in April 2021. Founded just 10 years ago, Coinbase is well known as the largest cryptocurrency exchange in the United States. Its market capitalization is close to $ 42.55 billion.

Coinbase achieved real growth in 2021 thanks to Bourlan in addition to other milestones. Upon further investigation, IntoTheBlock observed that the exchange reached its monthly maximum in May 2021 and was processing approximately $ 200 billion. Despite the slump since November, Coinbase has seen remarkable growth over the past year and a half, in parallel with numerous market corrections.

The outlook is that the veteran US exchange processed about $ 11 billion in trading volume in May 2020. By the end of January 2022, the exchange’s monthly trading volume was $ 120 billion, an increase of 1,000% in just one year. One and a half years. It also shows that the higher the volume of transactions processed, the higher the return to the centralized exchange and its shareholders. This is because the crypto trading platform charges for all transactions processed.

Uniswap: DEX candidate

Vitalik Buterin, the creator of Ethereum, first proposed the idea of ​​a decentralized exchange involving an on-chain automated market maker with specific capabilities. Former Siemens engineer Hayden Adams turned this concept into a functional product a year later, creating Uniswap. Today, it is known as one of the first DEXs created on the Ethereum network.

Uniswap’s V1 was launched in 2018 and has successfully gained the largest market share in terms of transactions processed. The next iteration (V2 and V3) focused on enhancing various aspects of DEX along the way. Today, Uniswap’s integrated protocol is firmly established as one of the top decentralized exchanges in the field. The market capitalization of UNI, the protocol’s native governance token, is approximately $ 7 billion at the time of this writing.

The transaction volume of Uniswap, the DEX reader, helps us understand protocol utilization and, in a broader sense, evaluate DeFi adoption.

Uniswap broke all records to date and reached record high transaction volumes in December 2021. According to statistics, DEX processed about $ 82 billion between V2 and V3 versions.

It’s important to note that Uniswap and other decentralized exchanges have repeatedly challenged established locations such as Coinbase. After analyzing trading volumes, IntoTheBlock’s indicators found that Uniswap succeeded in gaining a large market share in exchange services, even though it went live six years after Coinbase.

CEX vs. DEX dilemma

Users are slowly starting to move from CEX to DEX. The appeal of the latter is not limited to factors such as privacy and security. Yield opportunities are yet another impetus.

Centralized exchanges charge fees for transactions through the platform. This serves as revenue to keep your business running. Decentralized exchanges, on the other hand, have liquidity providers (LPs) to keep doors open. Anyone can become an LP by simply depositing in one of the pools without DEX permission. In this way, the LP can automatically start earning swap fees charged to users trading through the LP. That is, the fees charged are paid to CEX to provide the service, and the DEX revenue (swap fees) is allocated to the liquidity provider.

Coinbase typically charges users 0.5% of the transaction amount. Most pools in Uniswap charge 0.3%. That said, it’s important to consider that certain pools of DEX can drop from 1% to 0.01%. The ITB indicators above provide clear insights into the charges generated by both platforms.

In May 2021, Coinbase prices rose to a record high of about $ 1 billion. Meanwhile, Uniswap recorded an ATH in December 2021, with monthly charges close to $ 246 million. These were later distributed to liquidity providers. In short, Uniswap was able to allocate a $ 246 million swap fee during the month.

DEX innovation

To meet growing needs and demand, decentralized exchanges continue to innovate and enhance services for their users.

Recent DeFi developments include the implementation of a 0.01% commission pool for stablecoin trading on Uniswap’s platform, and the ongoing continuation of the 0.05% commission pool, which is currently the top-ranked pool in Uniswap trading volume. Includes growth and recruitment.

Deploying Uniswap to new rollup solutions such as Arbitrum and Optimism also enhances the already growing traction by minimizing the cost of transaction gas charges. This, coupled with a low-priced pool, gives DEX the ability to enter the highly competitive arena for the cheapest trading possible in space. DeFi and DEX continue to grow to provide the best possible service to a thriving user base while maintaining the unique characteristics that make it up, so the industry is migrating users to this area. And recruitment may continue.

summary

The above trends and user migrations will give you a better idea of ​​where your users are pivoting. The DeFi ecosystem is accelerating at an unprecedented pace. Therefore, careful monitoring is important.

DEX offers more opportunities than centralized DEX to engage the market and generate yields on user assets. DeFi flipping is real and DEX is where most development is done.

However, risks specifically associated with DEX, such as high gas prices and permanent losses in the case of liquidity providers, should not be ignored.