Centralized Exchange Volume Hits Rock Bottom, Decentralization Gains Prominence

In a noteworthy development for the cryptocurrency market, the trading volume of centralized exchanges experienced a substantial decline in May 2023, reaching its lowest point since October 2020. According to data from The Block, this decline amounted to a staggering $440 billion, reflecting a notable 27% decrease from the previous month. 

What is the reason? How is this going to impact you, the investor? We’ve covered it all. Read on!

Growing Trust Issues

One of the primary factors contributing to this decline is the mounting concern surrounding trust issues associated with centralized exchanges. 

The market was shaken when FTX, the second-largest and fastest-growing crypto exchange, suddenly collapsed due to a takeover by its rival Binance. This development followed a pattern seen earlier with the abrupt closures of other prominent crypto firms, including Celsius and Voyager. These struggling companies even resorted to tapping into customer accounts in an effort to stay afloat, further eroding trust in centralized exchanges.

Large Firms Withdraw from Centralized Exchanges

In addition, to trust issues, the withdrawal of large firms from centralized exchanges has also played a role in the overall decline in trading volume. According to a recent report, Binance, the largest cryptocurrency exchange by trading volume, witnessed a significant drop in monthly exchange volume during May, falling by approximately 26% compared to the previous month.

Decentralized Exchanges on the Rise

Amidst the decline in centralized exchanges, a notable trend has emerged: the rise of decentralized exchanges (DEXs) as a viable and attractive option for traders. 

Operating on blockchain networks, DEX platforms offer increased security, privacy, and control over funds by enabling users to trade directly with each other, bypassing intermediaries. Data from Dune, an on-chain analytics firm, reveals a surge in the number of users across various DeFi platforms in May 2023, reminiscent of the peak levels witnessed during the bullish phase in 2021.

Memecoins Steal The Spotlight

While the user base of decentralized exchanges expanded, the trading volume on DEXs experienced a slight dip in May. Settlements of trades on non-custodial exchanges amounted to $72.4 billion, reflecting a 2% decline from the previous month, as reported by Dune. 

It’s important to note, however, that this decline in trading volumes was partially attributed to a higher proportion of low-value transactions, particularly driven by meme-coin trading.

The Future of Centralized Exchanges

As the market adapts to these changing dynamics, it remains to be seen how centralized exchanges will respond to the growing demand for decentralized alternatives and restore faith among traders and investors. 

The decline in centralized exchange volume raises important questions about the future direction of the cryptocurrency market and the role that trust, security, and decentralization will play.