Centralized cryptocurrency exchanges are witnessing a significant drop in user numbers as traders begin to seek fertile ground.
Overall, Binance has seen its user base gradually decline in recent months in response to a series of regulatory setbacks.
At the end of June, the UK’s main financial authority — the Financial Conduct Authority (FCA) — clamped on Binance, the largest cryptocurrency spot exchange, by banning the platform from conducting regulated activities. This is the second time in a year that the FCA has cracked down on exchanges in the UK after it banned the sale of crypto derivatives to retail customers in January.
This has only added to the already significant regulatory challenges these platforms face – many of which have been forced to block users from specific regions (particularly the US and China) or severely restrict their access to services. .
Shortly after the FCA notification, the exchange lost multiple payment processors (including Checkout.com and Clear Junction) in a damaging blow. This was later followed by a stern warning from the Polish regulator, the Polish Financial Supervision Authority (PFSA), which warned that the stock market is not regulated in Europe.
In response, the exchange has seen its trading volume dwindle – down nearly 50% in the past month according to data from Nomatics. This may be due to the departure of some institutional traders, who have migrated from the stock exchange in favor of platforms with less heat on them.
Image Credits: Nomics
Similarly, with many centralized cryptocurrency exchanges now being targeted by the tax authorities of various countries – including the UK’s HMRC and the US IRS – there are growing concerns about how the privacy of otherwise law-abiding individuals could be compromised when using these. platforms.
In the face of these challenges, a growing proportion of cryptocurrency traders are now choosing to conduct their trades on decentralized platforms as they cannot be regulated, censored, or shut down by nature.
According to DeFi Pulse’s DEX trading volume tracker, trading volume on the 20 most popular decentralized exchanges has multiplied by more than 800% in one year. With Uniswap in particular, which achieves a monthly trading volume that is now on par with some of the largest centralized exchanges.
This is especially beneficial for those living in regions with limited access to financial infrastructure or who are unable to use centralized services due to regional constraints.
But it’s not just regulatory challenges that push traders away from centralized platforms. Decentralized alternatives are quickly becoming the preferred option for traders seeking a more complete trading experience – as decentralized exchanges now offer features that centralized platforms simply cannot match.
This is best demonstrated by the advent of decentralized trading platforms for derivatives such as Premium. As a fully decentralized options creation and trading platform, Premia allows users to create custom options and then trade them on the decentralized exchange no matter where they come from. Allowing users to underwrite options to earn returns sets Premia apart from the centralized options exchanges that reserve this feature for themselves.
Automated Market Makers (AMM) such as Uniswap and PancakeSwap are also poignant examples of DEXs that, at least in some ways, exceed the capabilities of centralized exchanges. Being completely decentralized and permissionless, they can trade anyone, anywhere, practically any ERC-20 or BEP-20 token (respectively) – this feature is unmatched by any centralized platform. In addition, they allow everyone to participate in the liquidity provision process, giving everyone access to a relatively safe income stream in the form of exchange fees.
With more and more people looking to avoid the privacy concerns and regulatory challenges associated with centralized trading platforms, it won’t be long before decentralized options become the norm. And with Ethereum’s high fee issues being addressed with the so-called ‘London upgrade’ on August 4, 2021, users will have another reason to move away from centralized platforms.
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