A recent report has highlighted that approximately 90% of the cryptocurrency market’s liquidity is controlled by just eight centralized exchanges (CEX). These exchanges include Binance, Coinbase, Kraken, OKX, KuCoin, Bybit, Binance.US, and Bitfinex. This concentration of liquidity among a few entities raises concerns about the decentralization of the industry.
The dominance of these exchanges becomes even more apparent when looking at the traded volume, as 64% of it is controlled by a single CEX. This centralization trend has been observed over the past two years, with the dominant CEX having only 38% of the trading volume in 2021.
The main reasons behind this concentration of liquidity are the first-mover advantage enjoyed by these exchanges, their ability to establish trust with users over time, and their offering of a wide range of cryptocurrencies with good liquidity pairs. In addition, these exchanges can invest in better technology, resulting in more reliable services.
While having a high level of liquidity can be appealing to traders and investors, it also creates a risky dependency on these centralized entities. Experts refer to this as “centralization vulnerabilities,” as any negative events affecting these exchanges could have a significant impact on the entire cryptocurrency space.
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