Methodology

• We are only focusing on Ethereum Blockchain for this analysis.

• Find all the CEX wallet addresses from ethereum.core.dim_labels where label_type = 'cex' and label_subtype = 'hot_wallet'

  • Find all the transfers from these CEX wallets to on-chain wallets, we explicitly ignore the CEX wallets.
  • Once we have all the transactions, we filter out the metrics we need like the amount of tokens, number of wallets, number of transfer, etc.

• For the age of the wallets, we look at the first transfer vs the first transaction for each wallet and then calculate the difference as the age of the wallet.

• For what people do after they withdraw to wallets, we look at various transactions like swaps, liquidity providing, nft spenders and lenders.

  • We make sure the qualifying activity per wallet takes place after the first CEX withdrawal.
  • We consider the swap as qualifying swap only when the wallet swaps the same token that was withdrawn
  • For all other activities, it could be any token, since the wallet might have swapped the token into some other for the activity.
  • We have a sample of 1000 wallets in the result below.
  • We also plot the numbers based on the findings as to how many wallets do what.

Overall Transfer Trends - Transactions

Transaction Frequency

• In the past 6 months we saw the number of transaction touch 2.5M per month and have been quite consistent each month, it has however come down slightly in June, July 2022.

Transaction Volume

• Transaction Volume on the other hand tells a very different story, the withdraw volume has been increasing in the past 6 months, June 2022 saw the highest transaction volume of withdrawals, totalling 250B $USD in 1 month.

Transfer Size per CEX

Transaction Volume - Total

• Binance saw the highest withdrawal volume, with May seeing the highest amount of outflow, a total of 86.5B $USD, with ftx coming in second with the highest amount of outflow in May 2022 with a total of 59.1B $USD.
• Other exchanges like coinbase and bitfinex has normal volume amount 12-14B $USD per month.
• OKEX, gate.io and MEXC however saw huge spikes in June 2022, most likely due to suspicions of recent issues with CEX exchanges.

Transaction Volume - Average

• In terms of Average Transaction Volume, Tether saw a huge spike in average transaction volume for the month of June 2022, with a total of 588 M.

Transaction Volume - Running Average

• Running average is interesting to see we see that the running average has been quite seen for almost all the exchanges except tether and latoken.

Wallet and Transaction Trends

• Wallet and transaction trends are similar across all the CEXs.
• We see a spike in Mar 2022, which slowly declines in the coming months.
• Binance leads the pack, followed by FTX in the number of Wallets funds withdrawn to and the number of outflow transactions as well.
• OKEX and MEXC are surprising to see in the top few CEXs for number of wallets withdrawn to.
• Overall Binance and FTX don’t show signs of distress, however OKEX and MEXC number of concerning.

Are people creating new wallets for withdrawals?

• To answer this question we look at the first transfer vs the first transaction for each wallet and then calculate the difference as the age of the wallet.
• The overall trend over all CEXs is the majority of the wallet withdrawn to are 10-50 days old, also there is a big number of of wallets, that are 0-1 or 1-10 days old.
• If we dig deep into each CEX, we see the binance accounts for the highest number of withdraw wallets that are 10-50 days old, followed by FTX withdrawals, the trends per CEX are similar to the overall trends as well.
• Looking at the number, it would be safe to say, yes, to some extent 50% of new wallets were created just to withdraw tokens from CEX.

What are people doing with their withdrawals?

• For what people do after they withdraw to wallets, we look at various transactions like swaps, liquidity providing, nft spenders and lenders.
  • We have a sample of 1000 wallets in the result on the right if someone want to use this data for some purpose.
• As per the findings 6.52M/7.26M wallets are holding the tokens they withdrew, which is an astounding 90% of wallets.
• The most significant activity that the wallets withdrawing from CEXs are doing is buying NFT, which we see 741K wallets buying NFTs which have withdrawn from CEX.
• Only 336 wallets are lending, 12 are providing liquidity and only 7 are swapping the tokens transferred.
• This is quite conclusive that majority of the wallets are withdrawing wallets to hold in Non-CEX wallets.

Conclusion

• We do see an increased activity and numbers across all the metrics of withdraws from CEX, be it number of transactions, withdrawal volume and number of wallets withdrawing.
• Also what the users do with these tokens is quite conclusive, about 90% of the users are holding these tokens.

What is a CEX(Centralized Exchange)?

Centralized exchanges are platforms which facilitate the buying and selling cryptocurrency, either for fiat currencies, like the US dollar, or between digital assets, like BTC and ETH. They function as trusted intermediaries in trades, and often act as custodians by storing and protecting your funds.[1]

Differences Between Centralized and Decentralized Exchanges

Centralized exchanges can be used to conduct trades from fiat to cryptocurrency (or vice versa). They can also be used to conduct trades between two different cryptocurrencies. While this may seem to cover all of the potential transaction types, there is still a market for another type of cryptocurrency exchange as well.

Decentralized exchanges are an alternative; they cut out the middle man, generating what is often thought of as a "trustless" environment. These types of exchanges function as peer-to-peer exchanges. Assets are never held by an escrow service, and transactions are done entirely based on smart contracts and atomic swaps. [2]

Problem with a CEX ?

Centralized exchanges are subject to a tremendous number of problems simply because they contravene one of the cardinal laws of cryptocurrency - the owner of the private key is also the owner of the asset. The biggest exchanges like Binance, OKEx and Huobi take control of user funds and use them for market manipulation. Instead of having the custodian working for the customer, they have their own interests at heart.[3]

Why are users moving out funds?

Now since the CEX owns the keys and the funds, if they were to go insolvent, a user would also loose all their funds, due to no mistake of their own, therefore when the rumors started that most of the CEXs are insolvent, we saw an outflow of funds from users.