JPMorgan predicted that centralized exchanges would continue to dominate the majority of global digital-asset trading volumes.
On Thursday, the bank’s strategists, led by Nikolaos Panigirtzoglou, warned clients that the DEXs’ slower transaction speeds, asset pooling, and order-traceability characteristics are likely to limit institutional participation.
Analysts also pointed out that DEXs’ reliance on price oracles that draw information from centralized exchanges, their susceptibility to hacks and exploits, the requirement for excessive collateralization, and systemic risks from the cascade of automated liquidations were all barriers to their widespread adoption.
The group noted:
“Risk/return trade-off more difficult to assess in DeFi (decentralized finance) given the use of different tokens in terms of assets borrowed or lent/collateral posted/received interest payments and given the general absence of limit order/stop loss functionality.”
Statistics from DefiLlama show that after the collapse of Sam Bankman-controlled Fried’s exchange FTX, trade volumes on decentralized platforms increased 68% to $97.22 billion this month from October, the highest since May.
This suggests a trend toward more decentralized forms of finance, according to many analysts.
Despite acknowledging the recent rise in DEX trading volume, JPMorgan does not think it signals the start of a significant long-term trend.
After FTX’s decline, the cryptocurrency market entered a state of shock, which had a cascading effect on many firms with exposure.