DeFi and Decentralized Exchanges Losing Market Share — Are We in the Wall Street Crypto Era?

Key Takeaways

• Is Wall Street trying to kill decentralized crypto trading?
• TradFi giants address issues posed by crypto exchanges

Since the collapse of major crypto institutions such as FTX and Celsius, decentralized crypto exchanges hoped for a surge in their business. Peer-to-peer trading venues such as Uniswap and dYdX bet their future on the loss of faith in centralized crypto institutions, seeing that they offer ownership over crypto tokens to clients, as opposed to companies like FTX that only provide access to said tokens.

However, that hasn’t exactly been the case. Decentralized exchanges plummeted by 76% in trading volumes compared to the year before. In the meantime, centralized institutions dropped by 69%. 

Now, with the emergence of TradFi giants such as BlackRock and Fidelity in the crypto space, decentralized exchanges are scurrying to find ways to retain and increase their market shares.

Decentralized Exchanges Need To Improve

According to Richard Galvin, co-founder at Digital Asset Capital Management, it has proven quite challenging for institutional investors to switch over to peer-to-peer platforms. While decentralized platforms’ “designs continue to improve and the platforms are still generally less than three years old,” big-time investors see that the institutional route is safer and more profitable.

Exchanges such as Binance are continuously working on improving their services by introducing new technologies, such as the Bitcoin Lightning Network which promises faster transfer with fewer fees.

On the other end, new institutional exchanges, namely EDX Markets, are emerging supported by financial giants such as Charles Schwab, Citadel Security, and Fidelity. 

A huge factor that sets the two types of exchanges apart is the list of offered tokens on their respective platforms.

Exchanges such as Binance or Coinbase offer a wide variety of tokens, including XRP. Meanwhile, EDX Markets chooses to stay on the safer side by offering tokens that are already approved by the US Securities and Exchange Commission for trade. 

A Much Bigger Threat

The rise of companies such as BlackRock, Valkyrie, and Fidelity in the crypto space proves that institutional investors would rather bet their futures with well-established financial institutions, rather than enjoy private ownership of tokens through exchanges such as Coinbase or Binance.

BlackRock is currently underway to receive SEC approval for the first-ever spot ETF.  The move would enable the world’s largest asset manager to eliminate the complexity of crypto trading through private wallets by enabling users to invest in the company’s future, instead of shelling out full price for tokens such as Bitcoin, which is now worth around $30,000.

On the positive side, the emergence of companies such as BlackRock also promises a huge surge of liquidity in the market, which naturally leads to an increase in value for any popular token.

Yves Longchamp, head of research at Seba Bank AG reports that Wall Street’s emergence in the crypto market “may benefit centralized-exchange volumes initially but could later also lead to an increase in volumes across decentralized exchanges due to a rise in demand for crypto in general.”

Coinbase, the biggest US-based crypto exchange is betting on both sides of the war. The decentralized exchange continues to rise in stock value due to its involvement with institutional giants. 

The company has now been named as a “surveillance partner” on multiple spot ETF applications filed by major financial institutions, including the aforementioned BlackRock, Fidelity, and Valkyrie.

These financial institutions see it as a win-win situation as they aim to finally receive approval from the SEC while Coinbase gets to guarantee its future in the market.