Balancer (BAL)
$14.90 (0.15 %) View coin
03 September 2020

DEXs Threaten Centralized Exchange Dominance as Share of Total Volumes Exceed 5%

Having eclipsed 5% of total crypto volume, decentralized exchanges (DEXs) are now seriously threatening the dominance held by centralized exchanges. Last month, over $12 billion was traded, with daily volumes increasing every day. This growth has been in large part due to DeFi governance tokens and food-based memecoins, whose demand can be described as nothing short of a frenzy. And unlike the days of the ICO and their close cousin the IEO, the initial source of liquidity for these tokens is on DEXs. To put this into perspective, the recently launched SUSHI token has done over $150 million on Uniswap in a single day. That’s more than several of the top exchanges do across all of their pairs.

Source: Messari

There are questions as to the sustainability of many of these experiments but regardless they validate the product-market-fit of DEXs as the primary avenue for newly launched assets.

To be more specific, it’s not all DEXs that are facilitating this volume. Looking closer at the volume composition, it’s clear there has been a heavy skew towards automated market markets (AMMs) which have accounted for the vast majority of growth as they now comprise 92% of total DEX volume. Uniswap is leading the way with over 62% of total DEX volume. Its permissionless nature, simplicity, and deep integration into DeFi have allowed it to consistently and increasingly dominate the landscape. Meanwhile, Curve and Balancer are beginning to carve their niche as they facilitate 17% and 9% of total DEX volume, respectively. The former provides extremely low slippage for stablecoin and wrapped bitcoin transactions, while the latter offers variable weight pools enabling pool creators to tweak parameters as they see fit. It’s clear AMMs are winning out over the order book model we see in traditional finance and on centralized exchanges. Enabling any token holder to earn a return on their capital has proven to be an incredibly effective means of generating much-needed liquidity in these nascent crypto markets. Even aside from the speculative fervor reminiscent of 2017 that has undoubtedly aided the recent growth of AMMs, their dominance has been a clear trend since the start of the year. Whether or not it will continue into the future will be one of the most important trends to watch going forward.

For a deep dive into this, stay tuned for our upcoming Bull + Bear Case for AMMs.

Balancer, a non-custodial portfolio manager and automated market maker, was drained of nearly half a million dollars from a sophisticated attacker that was able to exploit a bug in deflationary token pools. They were able to borrow $23 million through a flash loan on dYdX and convert to WETH which w...

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