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A report by the World Federation of Exchanges (WFE) states that 40% of cryptocurrency trading platforms are decentralized and utilize distributed ledger technology. However, the majority or 60% of these platforms use Central Limit Order Books (CLOBs) that closely resemble regulated exchange platforms.
Interesting Details Revealed from the Report
The WFE report indicates that there are a total of 500 cryptocurrency trading platforms offering various crypto-related products and services. The participation in the survey included several crypto platforms that provided important information about individual and institutional demands. The report reveals that many crypto platforms prefer to rely on an off-chain CLOB system for price data, quote viewing, and order execution.
It was found that these organizations only use the blockchain network for reconciliation and custody purposes. This means that investors do not directly interact with DLT, resulting in cost savings. In this way, transaction fees are only applied when orders are transmitted to the blockchain network. These types of crypto trading platforms with such regulation are called centralized platforms (CEX).
Notable Exchange Preferences
According to the survey, individual demand for crypto-related products and services is higher compared to institutional demand, excluding custody services. Institutional giants show a greater need for crypto custody services, resulting in higher demand. The report predicts that individual customers are less aware of the importance of investor protection based on different product demands from the two investor segments.
While the report mentions liquidity and customer demand, it reveals that centralized exchanges benefit from higher trading activity despite decentralized platforms offering lower transaction fees. The report also highlights price differences for the same trading pairs on different platforms, leading to arbitrage opportunities. However, the WFE report claims that such price volatilities indicate a potential inefficiency problem in the crypto market. The report also reveals that both centralized and decentralized crypto trading platforms fall short in implementing customer identification requirements due to the lack of crypto regulations, despite most countries imposing such measures.
