In-depth analysis of various types of exchanges, with DEX usage far ahead and the number of centralized exchanges gradually shrinking.

The cryptocurrency data analysis company Chainalysis released a research report on exchanges on September 9th. The report categorizes exchanges by type and trading volume, and analyzes the performance of various exchanges over the past year using data. It is evident that with the flourishing development of the cryptocurrency industry, each type of exchange plays a different role.

Cryptocurrency Exchange Overview

Looking at the amounts received by cryptocurrency exchanges in the past few years, the cryptocurrency industry has seen a rapid increase since 2020. As market prices rise, the amounts received by exchanges have also increased, reaching their peak in May during the bull market of the first half of this year. Subsequently, due to the market downturn, the amounts have gradually decreased.

However, the number of cryptocurrency exchanges has not increased with the rise in market prices. In fact, the peak was reached in August 2020 with 845 exchanges, and as of August this year, the total number is 672, a decrease of about 20% over the year.

Changes in the Number of Exchange Types

To explore the reasons for the decrease in the number of cryptocurrency exchanges, the report categorizes exchanges into the following 5 types:

• Decentralized exchanges
• Centralized exchanges
• High-risk exchanges, requiring only minimal KYC certification
• Over-the-counter (OTC) markets
• Derivatives exchanges

From the chart showing the changes in the number of each type of exchange, the decrease in numbers mainly comes from high-risk and centralized exchanges, while decentralized exchanges continue to rise.

Furthermore, for a more detailed analysis, exchanges are divided into large and small based on transaction volume. Exchanges that received amounts exceeding $10 million from August 2020 to August 2021 are considered large, while the rest are considered small. Centralized exchanges are further divided into two categories based on the trading pairs they offer:

• C2C Crypto-to-Crypto, offering only cryptocurrency trading pairs
• C2P Crypto-to-Fiat, offering fiat-cryptocurrency trading pairs

By further classifying, it is found that the top gainers are mostly large exchanges, with decentralized exchanges leading the pack. The types with the most significant decrease are the two small centralized exchanges.

Changes in the Flow of Funds for Each Exchange Type

However, evaluating the performance of an exchange type cannot solely rely on the growth in their numbers; the ability to generate stable revenue is also crucial. Looking at the trend chart of amounts received by exchanges, large exchanges naturally receive higher amounts, with decentralized exchanges showing the highest growth, followed by derivatives exchanges. Meanwhile, small exchanges show little change or a slight decrease.

There is a clear division in the chart, with a significant decrease in the amounts received by exchanges after May, possibly due to the market entering a bearish phase and reduced trading interest. The report attributes this to China's ban on cryptocurrency mining.

Looking specifically at the rapidly growing decentralized exchanges, the amount received surged to around $36.8 million in May this year, driven by the rapid development of the DeFi industry last summer. While centralized exchanges also saw growth, the rate was incomparable, and the fact that their business was severely eroded is undeniable.

Data on Single Transaction Amounts for Each Exchange Type

In August this year, detailed transaction data for various exchange types show that the average transaction amount for decentralized exchanges is more than double that of centralized exchanges, with an average single transaction exceeding $26,000. Looking at the quartiles, the median transaction amount for decentralized exchanges is $900, six times that of centralized exchanges at $150.

The report attributes this significant difference to the popularity of decentralized exchanges in countries with a more developed cryptocurrency industry, where investors are wealthier and allocate a larger proportion of their funds to DeFi investments, leading to noticeable differences in data.

For derivatives exchanges and OTC markets, traders are mainly experienced institutional players or high-volume whales, so it is reasonable for the transaction amounts to be substantial. Considering that these investors, if using conventional channels for deposits and withdrawals, would be affected by price slippage due to liquidity issues in both centralized and decentralized exchanges, significant price slippage is something traders would rather avoid.

While centralized exchanges may seem less popular based on the aforementioned data, they are actually the most traded type of exchange. As the cryptocurrency industry continues to develop, most novice investors conduct transactions through more secure and less technically demanding centralized exchanges. When traders on centralized exchanges wish to cash out their cryptocurrencies, they also need to utilize the services of centralized exchanges. With each type of exchange playing its role, investors will find the most suitable way to trade, promoting the development of the cryptocurrency industry.