DeFi is a revolutionary concept in which traditional financial products and services can be operated without intermediaries like banks. The emergence of Uniswap created alternatives for traders to access liquidity, and since then there’s been an explosion of decentralized exchanges and quite a lot of decentralized perpetual swap protocols have been developed.
However, data shows that although decentralized perpetual swap protocols should be seeing about $4.7B in trading volume based on Uniswap’s daily average, combined, they don’t even come close. Here’s why decentralized perpetual swap protocols are so currently “lacking” despite a “50x” growth potential claimed by the same data.
CEX And DEX Platforms Rise In Tandem During Crypto Market Uptrend
A rising tide lifts all boats, and the latest cryptocurrency market uptrend has brought an increase in trading volume across nearly every type of cryptocurrency exchange in the market. Several platforms have been unable to keep up with the demand.
According to the latest research from Huobi, there is one type of option that is, unfortunately, “not applicable to many traders” and, as a result, has fallen behind the rest of the space.
The research begins with a comparison of centralized exchange Huobi Global, which offers spot and derivatives trading under the same roof. Internal data shows that when spot volumes increase, derivatives volumes typically also rise in tandem.
The data is then used to compare Uniswap as a decentralized spot ecosystem and decentralized perpetual swap protocol dYdX. Interestingly, while Huobi Global’s spot trading volume represented only 19% of the total derivatives trading, Uniswap beat out dYdX by 331% during the same period.
Decentralized Perpetual Swap Protocols Are Lacking, Despite 50x Growth Potential
Further demonstrating how decentralized perpetual swap protocols are “lacking” currently, the report looks at five different centralized exchanges. The average across the grouping saw roughly five times the derivatives volume over spot, projecting that the total decentralized derivatives market should represent $4.7 billion in trading volume. The figure is found by taking the average daily trading volume of Uniswap across the past 30 days and multiplying by a factor of 4.82x.
The analysis shows that although the total should be somewhere around $4.7 billion according to projections, instead, the actual average daily trading volume across the four currently launched decentralized perpetual swap protocols is only a meager $67.7 million, or only 1.4% of the projected estimate.
dYdX, DerivaDEX, Perpetual Protocol, FutureSwap, and AlphaX are four of the currently live or about to go live platforms available and used in the data. While these platforms do replicate some of the experience found on centralized exchanges, liquidity is severally lacking. That’s where established CEXs like Huobi Global really shine – ensuring instant order execution and minimal slippage.
Given the potential of DeFi, there’s no surprise that everywhere you turn in the cryptocurrency industry, there’s a new development, product, or platform. And while almost all of them do offer promise in the long-term, traders should be wary that the lack of liquidity, among other issues, means that these decentralized perpetual swap protocols aren’t currently “applicable” for traders who might want to stick to proven centralized platforms until more growth is achieved.
You can read the full report and analysis here.