Crypto asset trading has continued to skyrocket in 2021, hitting new and unprecedented records:
- Volumes reached $3.8 trillion in April 2021 when bitcoin hit its all-time high. ● Between August 2020 to 2021, the traded value on large decentralized exchanges (DEXs), like Curve, Uniswap, and PancakeSwap grew by about 550% ● Major centralized exchange (CEX) Binance’s spot cryptocurrency trading volumes totaled $789 billion in September, versus $454 billion (€390.7 billion) in July, while derivatives volumes jumped almost 25% to $1.7 trillion.
DEXs have been gradually grabbing market share from CEXs
One of the major drivers of this trend is the perceived superiority of DEX on many fronts:
- DEXs replace a centralized authority with automated protocols that enable trading and direct swapping of tokens, while CEX users give up control of their assets to the exchange’s servers.
- DEXs provide the user full control of their assets, eliminating jurisdictional constraints, and negating the need for KYC procedures.
- DEXs generally have lower trading fees compared to CEXs.
Despite their ongoing success, DEXs are still affected by a series of significant challenges.
- They operate on smart contracts only, limiting their trading capabilities. ● Most DEXs offer limited liquidity, therefore asset prices are often priced inefficiently. ● Transaction speeds may be slow as they need to be checked and validated on a blockchain network by the network’s miners, not the exchange.
- Most DEX platforms are considered to be not user-friendly.