Taking a holistic view of the crypto industry, will DEXs truly beat CEXs as the market frenzy rides into 2023? DEXs – decentralized exchanges – have shown strong metrics from the summer of 2020 until date with an estimate of over $2 trillion worth of transactions done.
Further indices show that after a $234 billion peak in December 2021, DEXs had a monthly average of transactions of $100 billion in 2022. A higher percentage of this volume was run on Uniswap, built on the Ethereum blockchain.
On the other hand, CEXs had a total transaction volume of $2.3 trillion in May 2021 while the monthly average in 2022 was $695 billion. Despite the numbers showing that the monthly average for CEXs in 2022 is more than six times that of DEXs in the same year, the DEX-to-CEX spot volume ratio increased to 25% in February 2022.
According to the CMC report on the rise of DEXs, these numbers above and other factors in 2022 are driving the usage of DEXs up and the trend will likely remain if DEXs have better user experience.
Onboarding and user experience
CMC explained that CEXs are easier to onboard users as well as useful because the fiat on-ramps provide an easy ways to buy crypto assets with a bank account, and credit and debit cards. Another reason is that key management, in terms of security, is not as complex as that of DEXs where users are responsible for securing their keys.
However, there are newer developments for DEXs where self-custody wallets are integrating with payment platforms to make buying crypto easier too. An example is Metamask and credit card integration.
The aspect of key management remains a challenge for DEXs which affects the user experience, CMC added. Furthermore, it gets more complex with retail users who want to trade or swap their crypto on DEXs.
Collapse of CEXs and its effect
Users are beginning to try out non-custodial wallets like Trust wallet because of the recent collapse of CEXs such as FTX where billions of dollars were wiped out overnight. Loss of trust and confidence in CEXs has plagued how users interact with such platforms, CMC added.
CMC also pointed out that new users in the crypto space have shown an affinity for using a single multichain wallet that will take away the need to use multiple wallets at the same time. This is one trend, especially with users of Trust wallet.
“New Trust Wallet users are looking to adopt a one-stop-shop wallet solution for all their crypto needs New users who started using Trust Wallet in 2022 prefer only using one wallet for all their crypto activities,” CMC noted.
User experience first?
From the report, CMC revealed that many users prioritize user experience before “self-custody, permissionless access, immutable code, and transparency”. But when market situations get bad, DEXs become the preferred choice.
Citing the increased number of transactions on DEXs after the collapse of FTX, it is clear that “DEXs can overtake CEX volume” as the user experience is refined.