Centralized cryptocurrency exchanges are witnessing a considerable drop-off in user counts, as traders begin to seek more fertile ground.
Overall the last few months, Binance has seen its user base gradually fall in response to a series of regulatory setbacks.
In late June, the UK’s top financial authority — the Financial Conduct Authority (FCA) — clamped down on Binance, the largest cryptocurrency spot exchange, by prohibiting the platform from undertaking any regulated activities. This is the second time in a year the FCA has cracked down on exchanges in the UK after it banned the sale of crypto derivatives to retail customers in January.
This has only added to the already sizable regulatory challenges facing these platforms — many of which have been forced to block users from specific regions (particularly the US and China), or heavily restrict their access to services.
Shortly after the FCA notice, the exchange lost multiple payment processors (including Checkout.com and Clear Junction) in a damaging blow. This was later followed by a stern warning from Poland’s regulator, the Polish Financial Supervision Authority (PFSA), who warned that the exchange is not regulated in Europe.
In response to this, the exchange has seen its trading volume dwindle — dropping by almost 50% in the last month as per data from Nomics. This may be due to the exit of a number of institutional traders, who have migrated from the exchange in favor of platforms with less heat on them.
Likewise, with many centralized cryptocurrency exchanges now being targeted by the tax authorities of several nations — including the UK’s HMRC and the US’s IRS — there are mounting concerns about how the privacy of otherwise law-abiding individuals may be compromised when using these platforms.
In light of these challenges, a growing fraction of cryptocurrency traders now opts to conduct their trades on decentralized platforms, since by nature, these cannot be regulated, censored, or shut down.
According to DeFi Pulse’s DEX trading volume tracker, trading volume across the 20 most popular decentralized exchanges has multiplied by more than 800% in a year. With Uniswap, in particular, reaching a monthly trading volume that is now on par with several of the largest centralized exchanges.
This has particularly benefited those living in regions with limited access to financial infrastructure or who cannot use centralized services due to regional restrictions.
But it’s not just regulatory challenges pushing traders away from centralized platforms. Decentralized alternatives are quickly becoming the preferred option for traders looking for a more complete trading experience — since decentralized exchanges now offer features that centralized platforms simply cannot match.
This is best demonstrated by the advent of decentralized derivatives trading platforms like Premia. As a completely decentralized options creation and trading platform, Premia allows users to create customized options and then trade them on its decentralized exchange regardless of where they are from. By providing users the ability to underwrite options to earn a yield, Premia separates itself from the centralized options exchanges that reserve this feature for themselves.
Automated market makers (AMM) like Uniswap and PancakeSwap are also poignant examples of DEXs that, at least in some ways, exceed the capabilities of centralized exchanges. Being completely decentralized and permissionless, they allow anybody, anywhere to trade practically any ERC-20 or BEP-20 token (respectively) — this feature is unmatched by any centralized platform. Moreover, they allow anybody to participate in the liquidity provision process, giving everybody access to a relatively secure revenue stream in the form of exchange fees.