A report from the World Federation of Exchanges (WFE) notes that 40% of crypto trading platforms are decentralized and use distributed ledger technology, while the majority (60%) use central limit order books (CLOBs), quite similar to regulated exchange platforms.
The WFE report says there are a total of 500 crypto trading platforms offering various crypto-linked products and services. The survey saw participation from several crypto platforms, offering key insights into retail and institutional demands.
According to the report, many crypto platforms rely on off-chain CLOB systems for price oracles, quote display and order execution. These entities only use blockchain for settlement and custody purposes, meaning traders do not interact directly with it, which eventually helps save on transaction costs. In this way, transaction fees only apply when orders are settled on the blockchain. Crypto-trading platforms with this type of arrangement are known as centralized exchanges (CEXs).
According to the WEF’s survey, retail demand for crypto-linked products and services is higher than institutional demand, except for custody services. Institutional giants have shown a greater requirement for crypto custody services and higher demand. Based on the different types of product demands by each segment of investors, the report estimates that retail customers are less aware of the importance of investor protection.
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Regarding liquidity and customer demand, the report finds that CEXs enjoy higher trading activity despite decentralized platforms offering lower transaction fees. The report also sheds light on the difference in price for the same trading pairs on different platforms, leading to arbitrage opportunities. However, it claims this type of price fluctuation highlights a potential inefficiency issue in the crypto market.
The report further finds that despite most countries imposing Know Your Customer requirements, both centralized and decentralized crypto trading platforms have fallen short in implementing such measures due to a lack of uniform crypto regulations.