A newly released report by the World Federation of Exchanges (WFE) sheds light on the current composition of crypto trading platforms, highlighting that 40% are decentralized.
Notably, the findings from the report mainly reveal a glimpse into the dynamics between centralized and decentralized trading platforms and the overarching behavior of retail and institutional investors.
Centralized Vs. Decentralized: The Current State Of Crypto Trading Platforms
The WFE report underscores a pertinent challenge: the disparity in investor protection awareness among retail investors.
Out of the plethora of platforms available, the WFE identified that 60% of these platforms utilize Central Limit Order Books (CLOBs), resembling traditional regulated exchange platforms.
This suggests that even in digital currency trading, many platforms lean towards traditional mechanisms, pointing towards a preference for familiar trading architectures.
Despite the potential benefits distributed ledger technology offers, many platforms chose to operate off-chain for vital operations such as price oracles, order execution, and quote display.
The primary utilization of blockchain appears to be for settlement and custody, allowing traders to sidestep interaction with distributed ledger technology and subsequently reduce transaction costs. Such platforms, which utilize the blockchain primarily for compensation, fall under centralized exchanges (CEX).
Retail Vs. Institutional: Divergent Needs And Awareness
Retail demand for crypto-associated products and services has outpaced that of institutional players. Yet, when it comes to the domain of crypto custody services, institutional entities are showing a genuine appetite, according to the report.
This dichotomy underscores the divergent needs and understanding of the two investor groups. The report’s findings are alarming, suggesting that retail customers might not be as well-informed about investor protection as their institutional counterparts.
In the realm of liquidity and trading activity, the report shows that centralized exchanges seem to be leading the pack, even though decentralized platforms might offer more attractive transaction fees.
A fascinating discovery from the report relates to the price variance for identical trading pairs across different platforms. Such differences present arbitrage opportunities for discerning traders but indicate potential inefficiencies within the crypto market ecosystem.
The report also points out the need for robust regulatory frameworks by the report’s findings on implementing a know-your-customer (KYC) mechanism.
A glaring divergence has emerged, with centralized and decentralized platforms not entirely adhering to these mandates, mainly attributable to the absence of consistent global crypto regulations, according to the report’s findings.
Featured image from iStock, Chart from TradingView