Wild Ride: Crypto Trading on Decentralized Exchanges Plummets, Leaving Investors Wondering What Went Wrong

Decentralized cryptocurrency exchanges, known as DEXs, are experiencing a notable decline, according to data from the DeFi Llama explorer. Platforms like Uniswap, 1inch, PancakeSwap, and Curve have been witnessing a steady decrease in trading volume since March 2023, according to the portal’s data.

In September, monthly trading volume reached approximately R$ 250 billion, the lowest level in almost three years. To put it into perspective, DEX trading volume hasn’t been this low since January 2021. This represents a drastic 69% drop from the peak reached in March when DEXs saw a trading volume of nearly R$ 700 billion.

It’s worth noting that the increase in March occurred amid bankruptcies and crises of major banks worldwide, which emphasized the value of decentralization in the market. Additionally, growing regulatory pressure on centralized exchanges (CEX), such as Binance, Coinbase, and Kraken, may have motivated the interest and use of DEXs.

However, the decline in DEX usage since March can be attributed to various factors. Firstly, general market conditions play a role. Investor sentiment has shifted from greed to neutrality throughout the year, as indicated by Alternative. This explains the decrease not only in DEXs but also in CEXs (centralized exchanges).

Furthermore, some DEXs have been targeted by hacks and exploitations this year, including notable cases like Merlin and Curve Finance. These incidents may have raised concerns about the security of exchanges and discouraged investors from using them.

Another significant factor is regulatory pressure. In September, the US Commodity Futures Trading Commission (CFTC) imposed fines on three decentralized finance (DeFi) protocols: Opyn, ZeroEx (0Ex), and Deridex. The CFTC accused these protocols of illegally offering cryptocurrency transactions as they were not registered according to the law. This growing regulatory pressure, now affecting not only centralized exchanges but also decentralized ones, may have generated uncertainty and contributed to the decline in DEX usage.

The decrease in trading volume on DEXs also reflects the decline in trading volume on centralized platforms. The low liquidity in the spot market has impacted the prices of cryptocurrencies, which are struggling to initiate an upward trend.

Additionally, the launch of the first Ethereum ETF approved by the US Securities and Exchange Commission (SEC) in early October did not meet trading volume expectations. This indicates that investors’ appetite for the cryptocurrency market may be reaching its limit at the moment.

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