Key facts:
Ethers (ETH) on exchanges have not reached such a low level since 2018.
By contrast, DeFi platforms are amassing record and growing deposits.
Recent research indicates that, since the middle of last year, holders of ether (ETH), the cryptocurrency of the Ethereum network, choose to withdraw their cryptocurrencies from centralized exchanges. The new destination of crypto assets are, in most cases, decentralized finance protocols (DeFi).
The relationship between both indices was highlighted by The Defiantwhich also highlights that the 20.6 million ETH deposited on exchanges today represents the lowest level since August 2018. This can be seen on the chart from analytics firm Glassnode.
The data becomes stronger if one also takes into account that in 2018 there were fewer ethers than now, so 20 million at that time represented 20% of the total. In 2022, with 120 million ETH in circulation, the total in exchanges barely reaches 17%a percentage not seen since 2016.
From exchanges to DeFi
Where does the ETH that leaves the exchanges move? According to the cited source, decentralized finance protocols are getting more and more funding that were previously deposited on exchanges.
In accordance with another studio of Glassnode, there are currently more than 70 million ETH ($125 billion) locked in DeFi protocol smart contracts. Although the total figure varied over the course of 2022, an upward trend can be seen in the graph since mid-2021.
What does this trend of withdrawing Ethereum from exchanges mean?
Although there is no explicit reason that leads to this decision on the part of investors, there is a context that could support it. Below, we try to break down some possible causes.
1. DeFi allows getting away from state regulations
Although their regulation has been debated for a long time, as CriptoNoticias has reported, DeFi represents a more private sphere for the investment of funds.
Unlike traditional finance, they do not require registration or personal documentation to open an account. You just have to open a wallet and operate.
2. These protocols offer attractive services
Another reason may be the fact that DeFi platforms are offering services that the population is interested in and that, moreover, they prefer over traditional finance options. Examples of this are loans or the issuance of stablecoins, both with collateral in cryptocurrencies, or decentralized exchanges (DEX) that do not depend on a central authority and allow trading of cryptocurrencies and tokens between peers without intermediaries.
Besides, These protocols increasingly diversify their offer. They are not limited to offering investments in exchange for a return, but also allow trading tokens with leverage to boost profits or invest in liquidity pools in exchange for returns in the form of tokens, among other possibilities.
3. Traders have a bullish sentiment towards Ethereum
Finally, the intention of not having the ethers available to sell at any time indicates also that traders think its price will continue to rise. With this idea in mind, it seems that they prefer to have them in DeFi protocols generating returns and accumulate more for the future, when their price – according to their analysis – rises.
Apart from DeFi, another functional strategy to this premise would be to store crypto assets in self-custody wallets. In this way, they would keep them safe thinking in the long term.
The development of DeFi, a trend to follow in 2022
All the data mentioned shows a market trend that, of course, may vary in the future. For now, however, they also serve as an indicator of traders’ sentiment and plans.
We will have to follow how the trend evolves in the future. This will be important especially if one takes into account that Ethereum could complete its transition to version 2.0 in the course of 2022, as its developers promise, and that could transform the market for its ether cryptocurrency.