2022 was one of the most impactful years for centralised crypto exchanges since the collapse of Mt. Gox in 2014, with the fall of FTX raising many questions about the transparency of exchanges and what measures they are taking to protect users.
In this report, we analyse the CEX landscape in 2022, assess market-wide changes in trading volumes, liquidity measures, customer acquisition practices, and provide an outlook on the key trends to look out for in 2023.
The following data is based on eleven assessed digital asset exchanges.
You can download the report here.
Key Findings:
- Centralised exchanges allow market participants to on-ramp into the cryptocurrency ecosystem. With DeFi still in its infancy, centralised venues can act as a more secure alternative to getting digital asset exposure. In fact, trading volumes across CEXs have remained well above their decentralised counterparts, despite volume declining throughout 2022.
- Bybit and Kucoin were the only exchanges that saw a rise in trading volume in 2022, highlighting the nascent stage of the industry, where multiple firms can grow despite a broad market downtrend.
- Zero-fee trading programs have helped exchanges gain market share, however, spreads have also increased as a result. Bybit saw its volumes rise 248% the month after incorporating zero-fee trading, however, its spreads also rose from an average of 0.04bp in August to 1.48bp in September following this change.
- FTX's bankruptcy had a dramatic influence on the entire exchange industry - something which was also proven true for the Terra crash and 3AC bankruptcy. During each of these events, liquidity witnessed sharp spikes in volatility. In November, the average daily 1% BTC market depth decreased from $38.6mn in October to $28.2mn a 27.1% decline among the analysed exchanges.
- Binance was the market leader in terms of volume market share in 2022. The exchange's market share rose from 48.7% in the first quarter of 2022 to 66.7% in the last quarter of the year (excluding December). However, spot trading on the exchange still fell 45.3% to $5.39tn throughout 2022, in line with the general downward trend in the market.
Centralised Exchanges Remain Dominant Vs Decentralised Counterparts
In the digital asset space, centralised exchanges (CEXs) allow market participants to on-ramp into the cryptocurrency ecosystem. These exchanges are particularly important considering the current development of the industry - with DeFi still in its infancy, centralised venues may act as a more secure alternative to getting digital asset exposure. In fact, trading volumes across CEXs have remained well above their decentralised counterparts, despite volume declining throughout 2022.
Binance Leads Market Share in 2022, Bybit & Kucoin Only Exchanges To See Trading Volumes Rise
Bybit and Kucoin were the only exchanges that saw a rise in trading volume in 2022, highlighting the nascent stage of the industry, where multiple firms can grow despite a broad market downtrend.
Binance was the market leader in terms of volume market share in 2022. The exchange's market share rose from 48.7% in the first quarter of 2022 to 66.7% in the last quarter (excluding December). However, spot trading on the exchange still fell 45.3% to $5.39tn throughout 2022, in line with the general downward trend in the market.
Zero-Fee Trading Sees Increasing Volumes & Spreads
Zero-fee trading programs have helped exchanges increase market share, however, spreads have also increased as a result. Bybit saw its volumes rise 248% the month after incorporating zero-fee trading, however, its spreads also rose from an average of 0.04bp in August to 1.48bp in September following this change.
A similar trend can be seen for Binance, which saw a 10.3% volume on zero-fee pairs, however, spreads followed, rising 0.004bp in June to 0.459bp in July.
Proof of Reserves Measures Post FTX
The collapse of FTX has brought about a rapid change in the sector. Proof of Reserves is now considered a fundamental practice for exchanges to prove deposited funds are safe.
Exchanges have already begun to release Proof of Reserves since the fall of FTX. In November 2022, OKX released full Proof of Reserves that uses cryptographic verification (i.e. Merkle Tree) to ensure funds held match liabilities. Similarly, Bybit also released their own Proof of Reserves with Merkle Tree validation in the month of December.
The table below outlines the key characteristics that a Proof of Reserves should have, and what exchanges have carried out as of mid-December 2022.
