Theme 7: Centralized and Decentralized Exchanges in 2022

2022 Snapshots Theme 7: Centralized and Decentralized Exchanges in 2022

▪ In 2022, CEX and DEX will take pages out of each other’s playbooks to better position themselves to capitalize on the massive upside potential of digital assets.

▪ Regulation will be the top-of-mind issue for centralized exchanges as different jurisdictions continue to tighten. 2022 will be a year of horizontal and vertical integration for CEX.

▪ Derivatives and structured products will see significant developments in 2022 for investors to access higher yields.

12%

DEX to CEX spot trade volume, Dec 2021

2.6trn

Total spot volumes on exchanges (US$, Dec 2021)

Core thesis

Institutional and retail adoption is heavily dependent on the performance of centralized and decentralized exchanges, as the former is often the entry point into the digital asset ecosystem. Regulation, security and standards are top-of-mind issues for centralized exchange.

Significance and Disruptive Impacts

Centralized exchanges are dominant (and remain so in the near term), and decentralized exchanges are more efficient. Both camps will take pages out of each other’s playbooks to increase the competitiveness of their offering.

Expectation for 2022

1. A symbiotic relationship between centralized and decentralized exchanges CEX and DEX will coexist, drawing from the synergies of the respective value they bring and the massive upside potential of the digital asset market. Longerterm, infrastructure improvement and integration with decentralized protocols will be the differentiators of CEX. (See Interview with Ben Caselin, AAX)

2. Path to greater product diversity, transparency and liquidity Exchanges will introduce more diverse products insofar as permitted by regulations to stay competitive and meet client demand.

3. Centralized exchanges expand horizontally and vertically CEX are entering adjacencies such as NFT and DeFi, and the industry is undergoing consolidation with M&A and partnerships. (See Interview with Ben Caselin, AAX)

4. Strong growth in the derivatives market

Derivatives on DeFi and structured products will see significant developments in

53%

Derivatives as percentage of total crypto market (Dec 2021)

2022 for investors to access higher yield. (See Interview with Sudhu Arumugam, CoinFLEX)