A recent report from the World Federation of Exchanges (WFE) has shed light on the state of crypto trading platforms. The report reveals that 40% of these platforms are decentralized and use distributed ledger technology, while the majority (60%) employ central limit order books (CLOBs), which closely resemble traditional regulated exchange platforms.
In total, the WFE report identifies 500 crypto trading platforms offering a variety of crypto-linked products and services. The survey garnered participation from numerous crypto platforms, providing valuable insights into both retail and institutional demands within the industry.
According to the report, many crypto platforms utilize off-chain CLOB systems for price oracles, quote display, and order execution. These platforms only employ blockchain technology for settlement and custody purposes, meaning traders do not have direct interaction with the blockchain. This arrangement ultimately helps to reduce transaction costs since transaction fees only apply when orders are settled on the blockchain. Crypto-trading platforms operating under these conditions are referred to as centralized exchanges (CEXs).
The survey conducted by the WFE highlights that retail demand for crypto-linked products and services outweighs institutional demand, except when it comes to custody services. Institutional giants have displayed a higher requirement for crypto custody services, indicating a greater demand in this area. As for the different types of product demands by each investor segment, the report suggests that retail customers are less aware of the importance of investor protection.
In terms of liquidity and customer demand, the report indicates that CEXs experience higher trading activity in comparison to decentralized platforms, despite the latter offering lower transaction fees. Furthermore, the report draws attention to price discrepancies for the same trading pairs on different platforms, which opens up arbitrage opportunities. However, it notes that this type of price fluctuation highlights a potential inefficiency issue within the crypto market.
The report also examines the implementation of Know Your Customer (KYC) requirements on both centralized and decentralized crypto trading platforms. Interestingly, it reveals that such measures have fallen short due to a lack of uniform crypto regulations across different countries.
Overall, the WFE report provides valuable insights into the current landscape of crypto trading platforms. It highlights the dominance of centralized exchanges and the various factors influencing demand and liquidity within the industry. Additionally, it raises awareness about the need for uniform regulations to address compliance issues and protect investors in the crypto market.
In a rapidly evolving industry like cryptocurrency, reports like these help stakeholders better understand and navigate the challenges and opportunities that lie ahead. As the crypto market continues to grow and mature, it is crucial to gather accurate data and insights to inform decisions and ensure the development of a safe and efficient trading environment.