Coinbase trading volume surpasses Uniswap, defying expectations for a decentralized exchange surge.
Coinbase has surpassed Uniswap in trading volume, countering expectations for a surge in decentralized exchange (DEX) usage. According to a report by crypto data firm Kaiko, Coinbase’s trading volume reached more than $185 billion as of last Friday. That is almost double of Uniswap’s $93 billion.
At one point in 2022, the two exchanges’ volumes were almost the same. However, analysts, as per Jocelyn Yang, have indicated that DEXs offer a less user-friendly experience than centralized exchanges (CEX). That is why Coinbase’s volume has remained high.
Last year’s collapse of FTX and other centralized entities in the cryptocurrency ecosystem led many market observers to predict more traders would move toward DEXs. At one point in 2022, this shift seemed to be happening, with November trading volumes on decentralized platforms surging to $113 billion, the highest monthly level since May, according to analytics platform DefiLlama. However, the volumes are unlikely to surpass $100 million this month based on daily volumes.
Despite calls for a transition to DEXs, Conor Ryder, research analyst at Kaiko, said it’s “premature” to write off CEXs. That is because they still play a crucial role in onboarding the average investor. Ryder stated that the user experience on some DEXs is not as good as it is on CEXs. He stated that the average investor is still put off by this. He then stated that centralized exchanges will continue to be crucial for the industry, regardless of personal preference.
CEX FUD Diminishes
Lucas Outumuro, head of research at blockchain analytics firm IntoTheBlock, stated that the initial spike in demand for non-custodial trading and decentralized finance (DeFi) after the FTX meltdown has subsided. Outumuro pointed out that the daily number of new Ethereum addresses and trading volume remained small on DeFi exchanges. According to data from IntoTheBlock, the daily number of newly created Ethereum addresses reached around 228,000 on Nov. 24, its highest level since May 2021, but has fallen to less than 90,000 daily.
Outumuro explained that getting on board Coinbase is similar to what people are used to with other tech or finance platforms. Contrary to the likes of Coinbase, getting onto Uniswap has a completely different flow. This makes adoption take longer as new users may feel intimidated. JPMorgan strategists noted in a November note that slower transaction speeds, pooling of assets, and order-traceability features are likely to limit institutional participation. The analysts also pointed out the absence of limit order/stop loss features on DEXs, their dependency on price oracles that source data from centralized exchanges, vulnerability to hacks and exploits, the need for over-collateralization, and systemic risks from the cascade of automated liquidations as hindrances to widespread adoption.
According to Kaiko’s report, Coinbase’s dominance in the market has allowed it to make strategic acquisitions, such as Skew. Coinbase intends to use Skew’s technology to provide real-time analytics and data to institutional investors. This will give Coinbase a competitive edge in attracting more institutional investors. The latter typically trade large volumes and require access to real-time data.
CEXs remain popular because they offer a more user-friendly experience, better security, and more advanced trading features compared to DEXs. Coinbase and other CEXs provide easy-to-use platforms, high liquidity, and access to a broad range of cryptocurrencies. DEXs, on the other hand, rely on smart contracts to automate the trading process and provide users with greater control over their assets. However, DEXs can be complex and confusing to use, making them less attractive to average investors.
Bigger Fish Remains
Despite Coinbase’s trading volume surpassing Uniswap, Binance remains the leading cryptocurrency exchange. Even though Binance has been recently facing FUD regarding regulatory concerns, the platform still dominates the market with 15 times more trading volume than Coinbase. According to CoinMarketCap, Binance’s daily trading volume reached over $15 billion, while Coinbase’s was only $1.1 billion.
In addition, Coinbase’s decision to suspend BUSD, Binance’s stablecoin, due to compliance concerns have raised questions about the future of the tensions rising between the two exchanges. However, Binance’s reputation for offering a wide range of cryptocurrencies, low trading fees, and high liquidity continues to attract a large number of traders.
Despite the regulatory challenges that Binance faces, the exchange has proven to be resilient in maintaining its market dominance. With a strong global presence and a track record of innovation, Binance remains a force to be reckoned with in the cryptocurrency industry.