Best Cryptocurrency Exchange Fees

Data unveil who’s winning the crypto trading game

Data unveil who's winning the crypto trading game
Written by publisher team

As hot as the cryptocurrency market is these days, competing as a market isn’t always easy – even during a bullish year.

Recently, Robinhood (HOOD) and Coinbase (COIN) shocked their shareholders by announcing third-quarter results that did not live up to expectations. However, the platforms have likely gained a significant boost in volume during the current quarter, which makes it a good time to ask which ones are winning the cryptocurrency exchange game this year.

Most cryptocurrency exchanges do not report their earnings because they are not public companies, but a new study by blockchain forensic firm Chainalysis reveals a little bit about what it takes to move forward in this competitive business sector.

Over the past year, cryptocurrency exchanges on the growth path have shared some common features: they are larger, more innovative, and offer more digital assets than their competitors. Based on these criteria, larger players such as Binance, Coinbase, and FTX are at or near the top of the crypto-trading league table, Chainalysis found.

According to Chainanalysis data, the cryptocurrency exchange landscape has been shrinking since July 2020. As in other sectors, the consolidation has been characterized by larger players growing their businesses increasingly faster than their smaller counterparts.

Tracking the value sent to more than 1,500 crypto exchanges over the past year, the study divided exchanges into different segments based on business model and volume. Those sectors included over-the-counter (OTC) brokers, peer-to-peer (P2P) exchanges, high-risk exchanges (HRE), centralized exchanges, decentralized exchanges, and derivatives exchanges.

Cryptocurrency exchange by business model

Over-the-counter (OTC) brokers like Circle, ItBit and Genesis Trading provide a more personal touch to customers who spend more. This type of exchange service happens behind closed doors, catering to investors who want to buy and sell large amounts of cryptocurrency – which means they need a lot of liquidity.

On the other hand, peer-to-peer (P2P) exchanges serve the easiest way for unbanked trading. Platforms such as India’s Local Bitcoins, Paxful and Wazirx provide the most accessible entry point for people within communities underserved by the broader financial system, according to Chainanalysis. Unlike OTC brokers, P2P exchanges are not necessarily responsible for trades between clients on their platforms.

Chainalysis classifies high-risk exchanges as crypto markets with minimal KYC (know your customer) requirements, and this segment of the market is the true wild west of the cryptocurrency exchange world. Preferred by investors intent on protecting their privacy, lower regulatory requirements can also mean this type of exchange tends to be less credible and more risky.

Meanwhile, centralized exchanges provide the most popular exchange service for people looking to invest in cryptocurrencies. This segment includes some of the largest exchanges in terms of transaction volume such as Binance, Coinbase, Gemini, Huobi, Kraken and Okex.

This group can be divided into two different parts: crypto-to-fiat (C2F) and crypto-to-crypto (C2C); The latter does not allow investors to spend their money in fiat currencies.

Regardless of the volume strength that Coinbase and Robinhood are benefiting from to some extent, the study found that decentralized exchanges and derivatives have grown faster this year than any other type of business model based on received funds.

Derivative exchanges such as Binance, FTX, ByBit and Deribit primarily offer leveraged crypto products where clients can consolidate their gains or losses, by borrowing money to purchase futures or options contracts.

For derivative exchanges and large centralized exchanges from crypto to crypto, clients trade more stablecoins than any other asset.

Large decentralized exchanges (DEXs) also receive a significant portion (more than 20%) of the value received from stablecoins, and act as market centers where DeFi tokens can be traded and swapped – sometimes in complex pools that include lending. Right after the derivatives exchanges, the big DEXs experienced some of the highest growth rates between August 2020 and August 2021.

By itself, Uniswap DeFi protocol exchange currently holds a balance of $90.89 billion in assets, with over $101.78 billion in circulation in the past seven days.

Despite being technically decentralized, Uniswap Labs, the closest agent to the protocol, has a headcount of less than 50, which means it’s incredibly smart when compared to major central exchanges like Coinbase, Robinhood, and Binance, which all have 1,200. At least one employee.

Finally, the chain analysis indicates that a greater number of crypto assets “also play a significant role in the survival rate of exchanges.” Although many exchanges offering fewer assets still show higher volumes, offering a larger pool of assets appears to correlate with receiving above average monthly value.

However, the risks of listing new crypto assets also depend on the weight of the regulatory hurdles and investor risks associated with collateralizing the less well established assets.

At Yahoo Finance’s recent “Crypto Goes Mainstream” conference with Decrypt, Robinhood COO Kristen Brown addressed this issue, as more of her clients requested an online trading and crypto exchange platform to list cryptocurrencies like the hugely popular Shiba Inu.

Unlike other centralized exchanges like Binance or Coinbase – which listed more than 30 new tokens in 2021, Robinhood is taking a more cautious approach as Brown said at the event, instead choosing to support more time-tested assets such as Bitcoin and Ethereum. And Litecoin.

The Chainalysis study found that the fastest growing exchanges still dedicate most of their volume to Bitcoin (BTC-USD) and Ethereum (ETH-USD).

David Hollerith covers Yahoo Finance’s cryptocurrency. follow him Tweet embed.

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