Key facts:
For 15 months, DeFi exchanges had more on-chain transactions than centralized ones.
Network and security commissions would be some of the reasons that stimulate flight.
For the first time in a year, transactions on-chain on decentralized exchanges (Uniswap or PancakeSwap, for example) they fall to levels close to those of centralized exchanges (Binance or Coinbase, among others).
This is how they show it recent data of Chainalysis, a company specialized in the analysis of data in cryptocurrency block chains. About 15 months ago, decentralized exchanges eclipsed centralized ones, but that could be about to reverse.
The general drop in users and capital in the decentralized finance (or DeFi) industry also affects these protocols. In them tokens can be exchanged without the need to register or provide personal data to create an account.
Instead, exchanges such as Binance, Coinbase, Kraken and Kukoin, among others, although they are also experiencing the unintended consequences of the “crypto winter”, had a drop in transactions on-chain percentage lower.
The following graph produced by Chainalysis shows this:
It is worth clarifying that with transactions on-chain (in the chain), reference is made to those that are registered in the cryptocurrency networks, for example, Bitcoin, Polygon, BNB Chain or Ethereum. Internal transactions of a centralized exchange, which are movements in a database held by the company, are not taken into account.
The causes of the DeFi exodus
The aforementioned research company indicates that, in order to maintain their leadership, decentralized exchanges must meet three conditions:
- Offer lower fees than centralized exchanges
- Possess greater regulatory scrutiny
- Achieve greater automation, disintermediation and self-custody
Regarding the first condition, the high fees of the Ethereum network (where these platforms mostly live) make it difficult —if not impossible— to comply with. This medium has reported that hundreds of dollars have been paid to execute transactions at times when the network is extremely congested.
Regarding the second condition, it is perceived that the average retail DeFi user does not want more regulatory scrutiny. Although this may be a necessity to achieve institutional adoption. The advantage that greater interference from regulators would give everyone would be the possibility of have a clear legal framework on responsibilities in case of hacks and loss of funds.
Finally, the third condition is fulfilled by decentralized exchanges. These, by definition, base their operations on automated smart contracts. In addition, they allow most of the time to keep the cryptocurrencies in the custody of the user.
What DeFi Needs: Fast and Cheap Ethereum
Given all this, it can be thought that, if there were a cheap way to use Ethereum in an accessible way for most users, a new impetus could emerge for the use of DeFi, in general.
The development of second layer solutions (eg rollups) could be that catalyst. Optimism and Arbitrum are leading the race and little by little new and old decentralized exchanges are joining them.
Perhaps, the next DeFi-mania will not be lived on the congested and expensive main “road” of Ethereum, but on the fast lateral “highways”, which allow to reach the destination more quickly and cheaply.