According to a study report released by Citigroup (C) on Thursday, decentralized cryptocurrency exchanges (DEXs) have developed more quickly than centralized exchanges (CEXs) during the previous two years. Users leaving centralized systems to escape their more rigorous know-your-customer protocols is expected to increase the divide.
Instead of the conventional method of serving as a financial intermediary between buyers and sellers, DEXs are blockchain-based apps that organize massive trading of digital assets between numerous users using automated algorithms.
Based on the report, DEXs provide token holders with distributed income in the form of dividends and the option of self-custody funds. Citi stated that these exchanges have relatively lower fees when compared to top-tier companies in the game– after the trading rewards are taken into account.
An increase in regulation, according to the document, could be one-factor influencing DEX volumes in the near future. Users may start switching from “KYC-heavy CEXs”—that is, exchanges that need extensive “know-your-customer” procedures—to DEXs as crypto legislation expands and includes more stringent reporting requirements.
The bank also says that DEXs are much safer than CEXs in terms of custody of funds— referring to the collapse of Celsius and Voyager Digital. The regulatory environment is anticipated to worsen, and more consumers are probably going to transfer from centralised exchanges to decentralised ones, the note continued.
Citi claims that DEXs account for 18.2% of spot trading activity, stating that volumes have remained relatively stable at around $50 billion per month and generated $3.6 billion in total income in the previous year. If a recent governance proposal is approved, Uniswap, which now controls 70% of all DEX volume, might transfer up to $250 million to token holders.