Centralized Crypto Exchanges Losing Ground to DeFi Counterparts
In 2024, decentralized exchange (DEX) volume has been on the rise. It went from $133.5 billion in January to $179.5 billion this month, showing a 34% increase. Centralized crypto exchanges are losing ground to their decentralized finance (DeFi) counterparts, according to data analysis by experts.
Rise in DEX Trading Volume
Data from DeFiLlama and CoinGecko show that the percentage of crypto trading volume on DEXs has increased. In February, 4.6% of all crypto trading was on DEXs. This month, it’s over 7%, a 52% increase in DEX trading volume.
Kunal Goel, a senior research analyst at Messari, explained why DEX market share is growing. He said the growth of meme coins and long-tail assets is one reason. These assets usually appear on DEXs first and may never get listed on centralized exchanges.
Improved User Experience on DEXs
Goel also mentioned that onchain user experience (UX) has improved. Low fees and high throughput on Solana and Ethereum L2s make DeFi solutions easier to use. This has helped more people switch from centralized exchanges to DEXs.
DeFiLlama data shows that in the past 24 hours, DEX volume accounted for 22% of all trading volume. This percentage represents the dominance of decentralized exchanges over centralized ones.
Steady Increase in DEX Volume
So far in 2024, DEX volume has seen a steady increase. It went from $133.5 billion in January to $179.5 billion this month. The highest volume this year was in March when both centralized exchanges (CEX) and DEXs saw a big increase. CEX volume hit $4.8 trillion, and DEX volume reached $266.89 billion.
Goel noted that Bitcoin hit new all-time highs in March. Trading activity often goes up when prices and sentiment are high. Looking ahead, Goel expects centralized exchanges to move on-chain, changing their business model. He gave examples like Base and BNB Chain.
DeFi Market Cap Trends
TradingView shows a chart of DeFi market cap dominance, which is now at 3.86%. It has fallen from 4.47% on January 1 and had a high of 4.81% on February 25. Goel pointed out that this is unexpected because DEX volumes drive DEX value. It seems contradictory that the market cap dominance is falling while DEX volume is rising.
What is DeFi?
DeFi stands for decentralized finance, which includes financial tools built on blockchain. This includes DEXs, which operate mostly on-chain. The main purpose of DeFi is to allow anyone with internet access to lend, borrow, and bank without going through middlemen.
Similarly, the main purpose of DEXs is to allow anyone with internet access to trade or provide liquidity for interest. DeFi and DEXs are major areas of focus for decentralized application (dapp) development, which has seen significant adoption this year.
Factors Fueling DEX Growth
There are several factors behind the growth of DEXs. One is the rise of meme coins and long-tail assets. These often appear on DEXs first and may never get listed on centralized exchanges. Another factor is the improved onchain UX with low fees and high throughput on platforms like Solana and Ethereum L2s.
Centralized Exchanges Moving On-Chain
Looking to the future, Goel believes centralized exchanges will move on-chain. This means they will adopt some features of DeFi to stay competitive. Examples include Base and BNB Chain. This shift could disrupt their current business models but may be necessary to keep up with the growing popularity of DeFi.
Impact of Bitcoin on Trading Activity
Bitcoin’s price has a big impact on trading activity. When Bitcoin hit new all-time highs in March, both CEX and DEX volumes increased significantly. This shows that trading activity is often linked to price and market sentiment.
DeFi Market Cap Dominance
Despite the increase in DEX volume, DeFi market cap dominance has fallen. It’s currently at 3.86%, down from 4.47% at the start of the year. This drop is surprising because DEX volumes usually drive up DEX value. It suggests there might be other factors affecting the market cap.
Summary
In 2024, DEXs are gaining ground on centralized crypto exchanges. Improved user experience, the rise of meme coins, and long-tail assets are driving this growth. DEX volume has steadily increased this year, and experts believe centralized exchanges will need to move on-chain to stay competitive. While DEX volumes are up, DeFi market cap dominance has fallen, suggesting a complex market dynamic.
