40% of Cryptocurrency Trading Platforms are Decentralized: Insights from World Federation of Exchanges Report

This article delves deep into a recent report from the World Federation of Exchanges.

Find out how many platforms are decentralized, what drives investor demand, and why even in a decentralized world, centralized platforms still hold sway.

Plus, discover pressing regulatory issues that are affecting the crypto market.

Overview of Cryptocurrency Platforms

According to a report by the World Federation of Exchanges (WFE), 40% of cryptocurrency trading platforms employ decentralized ledger technology (DLT), while the remaining 60% use centralized limit order books (CLOBs), which closely resemble regulated exchanges.

The WFE report points out that there are a total of 500 platforms offering various cryptocurrency-related products and services.

Participating platforms in this study provided crucial insights into the demands of both individual and institutional investors.

Decentralized vs. Centralized Platforms

The report reveals that many platforms opt to depend on off-chain CLOB systems for price oracles, market displays, and order execution.

These platforms only use blockchain for settlement and storage purposes. This means that traders do not interact directly with DLT, thereby saving on transaction costs.

Transaction fees are only applied when orders are settled on the blockchain. Such platforms are often referred to as centralized exchanges (CEX).

Individual vs Institutional Investors

According to the WFE survey, the demand for cryptocurrency-related products and services from individual investors is higher than that from institutional investors, with the exception of storage services.

Institutional investors have a high demand for cryptocurrency storage services.

Based on these diverging demands between the two investor segments, the report infers that individual investor clients may not be fully aware of the importance of investor protection.

Market Efficiency and Regulation

Despite lower transaction fees on decentralized platforms, centralized exchanges experience more trading activity.

The report also highlights the arbitrage opportunities created by price differences for the same trading pairs on different platforms.

However, the WFE report argues that such price fluctuations expose potential inefficiencies in the cryptocurrency market.

KYC Implementation across Platforms

The report further notes that both centralized and decentralized cryptocurrency trading platforms are lagging in implementing identity verification measures, commonly known as Know Your Customer (KYC), despite most countries having such requirements.

This is mainly due to the lack of unified cryptocurrency regulations.