Decentralized Crypto Exchanges Struggle to Keep Up in Evolving Landscape

Decentralized crypto exchanges and platforms, which emerged as a disruptive force removing intermediaries, are experiencing a declining market share. Recent reports found that DEXs operating on smart contracts might be taking a hit because of their user interface and compliance issues.

Peer-to-peer trading platforms became a viable alternative to centralized exchanges after high-profile collapses in the market.

Interest in Decentralized Crypto Exchanges After FTX Collapse

Uniswap, PancakeSwap, Balancer, and dYdX are some of the top DEXs on DeFiLlama based on dollar value locked on the protocols. Uniswap has a dominance ratio of around 60%. The collapse of one of the largest centralized exchanges, FTX, caused further impetus to these decentralized platforms.

Kaiko data found that monthly spot trading volumes have substantially declined. DEX volumes are down 76% to $21 billion in June this year against January 2022.

In contrast, centralized exchanges recorded a 69% drop, maintaining a significant volume of $429 billion. The market share of peer-to-peer digital-asset platforms dwindled to 5% from a peak of 7% achieved in March 2023 based on Kaiko data.

Meanwhile, crypto proponents have advocated self-custody as trust in centralized entities eroded with bankruptcies.

Take a minute to learn about decentralized exchanges and listing tokens: How To Create a Crypto Token and List it on a DEX

Obstacles to Decentralized Platforms

While decentralized platforms garnered a niche following, they have shortcomings. Problems like complex user interfaces, slower transaction speeds, and lower liquidity than established centralized venues keep users away. And with the evolving regulatory landscape, industry players note compliance has been tricky.

Consequently, experts told the paper that many institutional investors found it impractical to trade on peer-to-peer exchanges. Considering they prefer the efficiency and regulation offered by big platforms like Binance.

Notably, Ethereum-based Uniswap v3 experienced almost doubled trading volumes hours following the US SEC’s lawsuit against Binance.

Uniswap, the largest decentralized exchange (DEX), has expanded its presence to the Avalanche network despite its native UNI token experiencing subdued price action. Currently trading near $6, UNI has remained mostly flat this past year.

Uniswap Labs, the firm responsible for the leading decentralized exchange in the DeFi space, recently announced its second major product launch.

Named UniswapX, the new protocol is an aggregation platform enabling third-party entities to execute users’ trades at the most favorable prices. With this development, Uniswap continues to push DEX boundaries.

Based on figures by Token Terminal, the circulating total market cap of DEXs are close to $8.4 billion. The total trading volume on the daily charts has taken a hit of 22% and is close to $748 million.

Despite their struggles with volumes, decentralized exchanges reportedly experienced a steady increase in monthly active users since 2020.