A recent survey by the cryptocurrency data aggregator, CryptoCompare, shows that centralized exchange operators do not see the emergence of decentralized trading venues like Uniswap as a threat despite the growing volume and activity in the DeFi space.
In its September exchange review, CryptoCompare surveyed 26 of the leading venues in the space on the likelihood of DEX liquidity overtaking centralized exchanges within two years. 70% of respondents stated that decentralized exchanges will not overtake centralized exchange volumes due to a lack of liquidity.
Only 7.7% of the representatives considered this to be a likely event, while 19.2% remained neutral. As shown below, 34.6% of respondents think this is unlikely and 38.5% think this is very unlikely.
DEX Liquidity Survey Results. Source: CryptoCompare
Is DeFi still a diamond in the rough?
It’s easy to dismiss DeFi as just another short-lived crypto trend carried on by money-hungry founders and fueled by gullible investors. The sector is similar to that of the 2017 ICO madness for several reasons.
There are unaudited contracts worth hundreds of millions of dollars, unrealistic returns for platforms that appear to be nothing but vaporware, and a whole load of FOMO. Since DeFi became a buzzword, there have also been a significant number of scam projects and developer dramas that have caused big waves in crypto media.
So the question is whether most highly speculative token projects gain a lot in value overnight for no reason and then crash abruptly the next day only to crash that abruptly. Why do investors keep investing money in DeFi?
The main reason is that the rewards through liquidity logs have brought in incredible sums of money for farmers. As high APYs attract more high-yielding farmers, decentralized exchanges like Uniswap and Curve can expect growing liquidity. As long as this cycle persists, an increase in DeFi trading volume is expected.
Time to take DeFi seriously?
However, rewards usually come from trading fees. This means the higher the volume, the more exchanges and liquidity providers earn.
DEX daily active users. Source: Digital Assets Data
Although data from Cointelegraph and Digital Assets Data show that the number of active users on decentralized exchanges has steadily declined since September, the total value locked on DeFi platforms continues to rise.
Total value locked in DeFi platforms. Source: Defi Pulse
Flipside Crypto, an onchain data resource, recently found it is sending around $ 300 million daily to DeFi applications in Ether and other ERC20 tokens.
This is nearly double the inflow to centralized exchanges, and 70% of the $ 300 million alone is sent to Uniswap. It’s also worth noting that Uniswap’s trading volume in September exceeded that of leading centralized exchanges like Coinbase several times.
According to the CryptoCompare survey, representatives of central exchanges believe that the privacy offered by DEXs is the number one reason why traders use these exchanges.
While this is partially true, some of these projects also aim to solve some of the most difficult problems that exist in the world of digital assets.
For example, Curve gives users the ability to swap stable coins with very little slippage due to their liquidity pools, while Pickle Finance aims to stabilize the peg of stable coins by artificially increasing supply and demand through malleable incentive mechanisms.
There are a handful of similar projects, and their existence shows that DeFi is attractive not only for its benefits to the individual but also to the community.
The truth is, DeFi centralized exchanges feel threatened
Many industry leaders have chosen not to take DeFi seriously by simply writing it off as just another fad, but Binance CEO Changpeng Zhao sees it differently. Recently, CZ CoinDesk announced that it expects DeFi to “cannibalize” their exchange, and this explains that the exchange has been on some serious venture in DeFi lately.
Although survey participants are now effectively ignoring trading volume with decentralized exchanges, an interesting finding is that 40% of the exchanges surveyed have admitted that they are building or planning to build a DEX in the future.
This is a clear signal that centralized exchanges do indeed see DeFi as a serious threat to their current business models.