According to CoinGecko, the centralized exchanges sector has grown 6% in the last 7 days with a marketcap of $115 billion and a 24-hour trading volume of $4.3 billion. This put this niche in the Top 10 categories with the highest marketcap in the entire ecosystem.
Therefore, considering the huge influence of this sector, in the Messari Report 2021, you will discover the challenges that centralized exchanges are facing.
Current Status of Centralized Exchanges
Currently, when crypto adopters want to buy, trade, sell, borrow, lend, or just hold their assets, it requires at least three major services: exchange, custody, and information. Therefore, centralized exchanges provide the aggregate of these three crucial services by providing custodial ownership and information services.
As part of the Messari 2021 report, the crypto analytics platform takes a deep dive into whether crypto infrastructure will stay the same. That is, retain reliance on crypto exchanges or if the new year will usher in new unbundling services. Here is a updated chart of how centralized exchanges are doing:
Can Centralized Exchanges Lose Their Leadership?
This is the question every supporter of true decentralization in the crypto space has. For now, it looks like centralized crypto exchanges will continue to blaze the trail right through the new year. According to Messari, Binance retained its top position in 2021. The exchange also acquired CoinMarketCap (CMC) for $400 million.
Also, other exchanges made huge innovative steps. One example is FTX, one of the fastest-growing exchange operators in 2021, who also acquired Blockfolio for $150 million. Therefore, in its report, Messari pointed out that “It’s expensive to bet against the bundlers.”
Moreover, there are several reasons to continue giving centralized exchanges an edge over unbundling. Some of these reasons include:
- Regulatory and technical reasons have given them the edge over unbundling.
- They enjoy huge capital gains from trading fees.
- Lack of education from crypto users despite the huge risks of hacks.
Is There a Future For Unbundling?
Despite the seemingly superior nature of crypto exchanges, unbundling seems to be slowly gaining ground. According to the reports, Bitcoin reserves in centralized crypto exchanges are down by approximately 25% since March 2021.
On the other hand, several centralized exchanges have faced several issues over the past couple of months. Here are some examples:
- Bitfinex: Is still in a tough legal battle with the New York Attorney General.
- BitMEX: Judicial charges have eliminated all forms of trust in the exchange.
Other exchanges devoid of legal battles like Kraken and Coinbase have also lost important business. This loss in business has been traced to its incomplete market pair coverage issues. Here is a comparison chart between the features of centralized and decentralized exchanges:
Centralized Exchanges Bleed Out
According to this report, there are 5 reasons why centralized exchanging are losing their leadership:
- AMM for Retail – A major example of this is the DEX pioneer platform Uniswap.
- Prime Brokerage services are now replacing crypto exchanges. They are becoming the go-to platforms for investors, especially institutional-grade investors. Examples of Prime brokers include Fidelity, BitGo, Grayscale, etc.
- Qualified Custody – Decentralized custody is one of the most challenging aspects of unbundling. Currently, there are two ways for institutional crypto custody namely; Staking, and Secure storage.
- Web3 Wallets to serve as Sovereign Banks
- Quants – makes it possible for crypto investors to enjoy seamless and unrestricted access to reliable and accurate information anytime.
According to the Messari report, they conclude: “Do your research has never been easier or more fragmented.” Also, they stated: “[…] crypto is a tool for free people, free-thinking, and free markets.” Adding that helping people understand the crypto space is a major focal point for the analytics platform.
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