DEXs (Decentralized exchanges), which have outperformed centralized counterparts in recent years, are one of the most renowned success stories of DeFi. However, the total volume traded on DEX has dropped significantly since the year began.
BanklessTimes.com reports that the volume traded on the DEX dropped by 58.2% since January. The data revealed that DEX traded upto $159.94 B in January, and by August, it only transacted $66.84B.
Speaking on the data, BanklessTimes.com CEO said, “The drop in the volume of trade on decentralized exchanges is a trend that we have been observing for some time now.
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“The reasons for this are manifold, but the most important one is the fact that many centralized exchanges (CEX) have started offering similar features as DEX, thereby eating into their market share.”
Merry added that another reason for the decline in DEX volume is the lack of regulatory clarity surrounding decentralized exchanges. He said that this has led to many investors being cautious about trading on these platforms.
Will CEX outdo DEX?
The increased competition from centralized exchanges has put pressure on decentralized exchanges to improve their offerings. However, this has not been easy, given that DEX are built on decentralized infrastructure and require complex coding to offer new features.
Despite the challenges, Merry is confident that DEX will continue to play an important role in the cryptocurrency space. He said, “DEXs offer a more secure and efficient way to trade digital assets. They are also better equipped to deal with the increasing regulations in the space.”
It is important to note that DEX still has some key advantages over CEX. For instance, DEX is more reliable as it does not require users to deposit their funds on the exchange.
This reduces the chances of hacks and thefts. Additionally, DEX offers more privacy as it does not require users to go through Know-Your-Customer (KYC) procedures.
What does the future hold
For DEX to maintain its dominance, there are measures it must undertake. DEXs must charge lower fees and have more fair pricing than CEX. Besides, the decentralized exchange needs to continue to function under regulatory scrutiny.
Moreover, DEXs need to change people’s perceptions about blockchain-enabled features like permissionless trade and self-custody. Doing so will motivate more individuals and firms to use DEXs.
At the moment, it is still too early to tell whether DEX can remain relevant in the long term. However, the success of DeFi protocols shows that there is a high demand for decentralized platforms. As such, DEXs will likely continue to grow in popularity in the coming years.