New data from analytics firm Kaiko reveals that the eight largest cryptocurrency exchanges now control over 91% of the market depth and 89% of all trading volume. Binance, the leading exchange, alone accounted for 30.7% of global market depth and 64.3% of global trade volume in 2023. This concentration of liquidity within a handful of platforms raises questions about the decentralization ethos of the cryptocurrency industry.
Kaiko’s report indicates that Binance’s market share of spot volume has surged from 38.3% in 2021 to 64.3% in 2023. A significant portion of this increase is attributed to Binance’s zero-fee trading promotion. While there are hundreds of trading platforms in existence, most cater to niche segments of market activity, further concentrating liquidity within the top exchanges.
Regulatory impact and risks
The report also highlighted the impact of regulatory agendas on altcoin liquidity. In the United States, where anti-crypto regulations are in place, altcoin liquidity has become highly concentrated within three major exchanges: Coinbase, Kraken, and Bitstamp. Specifically, Kraken’s altcoin liquidity has performed exceptionally well, making it a strong contender against Coinbase. Since August 2022, Kraken has not experienced any drop in market depth for the top 30 altcoins, whereas Coinbase has lost approximately $5 million in liquidity.
Kaiko’s findings also point to the risks associated with such concentration. The collapse of FTX serves as a cautionary tale, illustrating the dangers that can arise when centralized exchanges lack fundamental safeguards for traders in the event of failures, hacks, or market manipulation. The report took into account data on average 1% market depth and cumulative trade volume for Bitcoin and Ethereum, as well as over the top 28 cryptocurrencies by market capitalization.
Other exchanges in the limelight
Besides Binance, other exchanges that command a significant portion of global market depth in 2023 include OKX, Bitfinex, Coinbase, KuCoin, Kraken, and Bybit. These platforms, along with Binance, collectively control 91.7% of market depth and 89.5% of trading volume. The concentration has intensified over time, according to Kaiko, which compiled data for this report by considering multiple factors, including market fluctuations and multi-year lows in trading volume and volatility.
The report concludes by noting that while concentrated liquidity may benefit average traders by providing a stable source of liquidity, it also poses significant risks to the industry, particularly in the absence of adequate safeguards. With such a high concentration of market activity in a few hands, the crypto industry finds itself at a crossroads, balancing the benefits of liquidity with the ideals of decentralization.