Questions

With the collapse of FTX, do users want to remove their crypto from centralized exchanges and use decentralized options for trading? Examine the following:

• How have the number of DEX users changed? Are there more unique users?
• Have the number of swaps changed?
• Has the volume (in USD) changed?

Algorand

Ethereum

Osmosis

Solana

What Is a Decentralized Exchange (DEX)?

In theory, DEXs seek to offer alternatives to centralized exchanges (CEXs), but in practice, they embody the pros and cons of each type of exchange.

A decentralized exchange (DEX) is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. In contrast to centralized exchanges (CEXs), decentralized platforms are non-custodial, meaning a user remains in control of their private keys when transacting on a DEX platform. In the absence of a central authority, DEXs employ smart contracts that self-execute under set conditions and record each transaction to the blockchain. These trustless, secure transactions represent an accelerating segment of the digital asset market, and are pioneering new financial products.

Leading centralized crypto exchanges facilitate every aspect of the digital asset trading experience: from security to fair market pricing to regulatory compliance, consumer protection, and access to the latest digital assets. On most CEXs you must deposit fiat or cryptocurrency into an exchange-held crypto wallet before making trades. From your exchange wallet you can transfer funds to an external crypto wallet. You can also exchange crypto for fiat and withdraw funds into your bank account. In September 2020, CEXs accounted for around 95% of all crypto trading volume.

On the other hand, DEXs have emerged as an alternative to CEX platforms, offering P2P trading and access to the emerging sector of decentralized finance(DeFi). Platforms like Uniswap, Sushiswap, and Bancor have become widely recognized as decentralized alternatives to centralized exchanges.

DEX platforms take a different approach to facilitating the buying and selling of digital assets. Instead of employing an intermediary organization to clear transactions, DEXs leverage the functionality of self-executing smart contracts. In the absence of intermediaries, DEXs take on a non-custodial framework in which you retain control of your private keys and cryptocurrency funds.

Most DEXs have no counterparty risk, meaning they don’t have a risk of credit default, and do not follow Know Your Customer (KYC) or Anti-Money Laundering (AML) protocols.

Advantages of DEXs

Decentralized crypto exchanges offer advantages that impact digital asset custody and diversity, transactional trust, trading fees, and investor privacy.

1️⃣ Custody → DEXs are non-custodial, which means traders don't need to relinquish the control of private keys to transact. Instead, externally held wallets interact with DEXs, and trades self-execute through smart contracts.

2️⃣ Diversity → In October 2020, there were over 7,400 cryptocurrencies on the market. CEXs exercise control over the cryptocurrencies they will list, and will generally only list those with adequate trading activity, prevalence, and effective security standards to ensure profitability and legal compliance. Many altcoins are only accessible through DEXs, where P2P transactions can occur without high trading volumes. This provides a wider opportunity for engagement in digital assets and enhances financial inclusion.

3️⃣ Trustless Transactions → On CEXs, every transaction is overseen and recorded by a central authority, the exchange itself. Through smart contracts, DEXs execute trades and record them to the blockchain, enabling trustless transactions. And since DEXs do not hold your funds, they are less likely to be targeted by hackers.

4️⃣ Lower Fees → Decentralized exchanges function through the use of self-executing smart contracts. In the absence of an intermediary, DEXs use the same gas fee structure as the Ethereum blockchain they’re built on. DEXs charge a low fee, around 0.3% for exchanges like Uniswap. Although these fees fluctuate in response to the network utilization, they remain far lower than the costs incurred on centralized alternatives.

5️⃣ Privacy → Traders using decentralized exchanges don’t need to disclose their private keys because wallets are held externally, and the DEX is not liable for the funds. For the same reason, users aren’t typically required to complete KYC and AML procedures when using DEXs. While this may be advantageous in regards to convenience, it is potentially problematic from a legal perspective.

Disadvantages of DEXs

The disadvantages that result from decentralized exchange use also present hurdles to widespread adoption. These shortcomings influence DEX scalability, user experience, market liquidity, and the mobility of capital.

1️⃣ Scalability → Blockchain scalability depends on the number of transactions a network can process before reaching capacity. For instance, the Bitcoin network processes 4.6 transactions per second (TPS), while Ethereum achieves 15 TPS. Decentralized exchanges function using smart contracts that live on blockchain networks. As such, DEXs are bound by the limits of their underlying network infrastructure.

2️⃣ User Experience → DEXs are in early stages of development and can be challenging to use for those less familiar with decentralized blockchain technology. First, users need to familiarize themselves with external wallet platforms so they can interact with a DEX. Then, they must fund their wallet by transferring fiat or cryptocurrency. Finally, they need to link this wallet to the DEX interface to execute a trade. The process of depositing funds for trading is significantly more straightforward on a CEX.

3️⃣ Liquidity → Because DEXs are still relatively new and support diverse trading pairs, market segregation has a negative impact on market liquidity. Nevertheless, asset liquidity has been increasing remarkably with the growth of DeFi.

4️⃣ On and Off-Ramps → Current DEX technology does not facilitate the purchase of digital assets with fiat currency like USD, nor can you trade fiat or make withdrawals into your bank account. While stablecoin technology is emerging to replicate the role of fiat in the DeFi ecosystem, the lack of fiat on and off-ramps is a barrier to entry for novice users.

Exchanges of the Future

> Although centralized exchanges still dominate crypto markets and serve the needs of everyday crypto traders and investors, decentralized alternatives provide an interesting alternative. Through on-chain smart contracts, DEXs provide a trustless method of connecting buyers and sellers, and are offering new models of equitable involvement and governance for stakeholders. However, these platforms are still in their infancy, and further refinement of the user experience, development of the infrastructure, improved scaling mechanisms, and increasing connections to centralized crypto and legacy financial institutions will be necessary to ensure future adoption.

✍🏻 Methodology

• In this dashboard, the following tables are used to extract data:

  • algorand.defi.fact_swap

  • ethereum.core.ez_dex_swaps

  • osmosis.core.fact_swaps

  • solana.core.fact_swaps

    The data in the above tables have been used to evaluate the number and volume of swaps in different DEXs.

• Among the different databases, only in the Ethereum table, the swap volume can be obtained directly in USD. In the Algorand, Osmosis and Solana databases, the following tables are used to extract the price of different tokens in USD:
  • algorand.defi.ez_price_swap
  • solana.core.fact_token_prices_hourly
  • osmosis.core.dim_prices
• On the other hand, the following table was used to extract the symbols of some tokens in the Osmosis database:
  • osmosis.core.dim_labels
• We have also used the following tables to extract addresses related to CEXs (label_type='cex'):
  • algorand.core.dim_label
  • ethereum.core.dim_labels

📜 Strategy

To evaluate the impact of the collapse of the FTX exchange on crypto users, we chose the following strategy:

1️⃣ The events that led to the collapse and bankruptcy of FTX started on November 2nd and these events continued until November 11th, so this period is labeled "During the Collapse" in our analysis. The events of this period are:

• Initial reports and sell-offs: Nov. 2 to 8

  • Bankman-Fried also founded a crypto trading firm called Alameda Research; CoinDesk reported on Alameda’s troubled balance sheet on Nov. 2. Its largest assets, according to the report, are billions of dollars worth of FTT.
  • The CEO of rival exchange Binance, Changpeng Zhao, also known as CZ, tweeted on Nov. 6 that he was planning to sell off Binance’s stockpile of FTT because of “recent revelations that have came to light,” referring to the Nov. 2 CoinDesk report of FTX and Alameda’s blurred funds. He compared FTX’s situation to the crash of TerraUSD and LUNA this year that tanked the crypto market and cost investors billions of dollars. But typically, such moves aren’t announced publicly.
  • Zhao’s announcement led to a rapid decline in FTT’s value over the next day as suspicion grew that FTX didn’t have the liquidity needed to back transactions and stay afloat. The value of other coins (including BTC and ETH) declined as well, with Bitcoin dropping to a two-year low. Bankman-Fried said in a tweet on Nov. 10 that the platform saw $5 billion in withdrawals on Nov. 6.

• Withdrawals freeze, a deal falls through: Nov. 8 to 11

  • Zhao and Bankman-Fried struck a deal for Binance to acquire the non-U.S. branch of FTX. The exchange CEOs signed a nonbinding letter of intent on Nov. 8, essentially promising to bail out the failing exchange to prevent a larger market crash.
  • On Nov. 8, FTX halted all non-fiat customer withdrawals. On Twitter, Bankman-Fried posted a string of apologies explaining FTX’s liquidity issues and promising more transparency.
  • Binance withdrew from the deal. On Nov. 9, Zhao posted on Twitter that Binance had completed its “corporate due diligence” and said it would not be acquiring FTX. Zhao tweeted that the news reports of “mishandled customer funds” and “alleged U.S. agency investigations” contributed to his decision. Bankman-Fried appeared to reference Zhao’s influence on FTX’s fall in a cryptic post on Twitter where he said, “Well played; you won.”

• Bankruptcy and hacks: Nov. 11

  • On Nov. 11, FTX announced that it had filed for voluntary Chapter 11 bankruptcy proceedings for FTX, FTX.US and Alameda. Chapter 11 bankruptcy allows businesses to restructure their debt and continue operations, unlike Chapter 7 bankruptcy, where assets are liquidated.
  • FTX.US also temporarily froze withdrawals on Nov. 11, following the bankruptcy announcement, despite earlier reassurances that FTX.US was not affected by FTX's liquidity troubles. Withdrawals were later reopened.
  • FTX and FTX.US wallets were emptied on the evening of Nov. 11 in an apparent hack. More than $600 million was drained from the wallets, CoinDesk reported. FTX posted about the hack on its support channel the instant-messaging service Telegram, saying, "FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don't go on FTX site as it might download Trojans." Trojans are malware disguised as legitimate software.
  • A Twitter user reported that hackers were also attempting to access bank accounts linked to FTX.US. Plaid, a service that connects customer bank accounts with financial applications, responded to “concerning public reports” by shutting off FTX’s access to their products, noting they didn’t see an indication their tools had been used fraudulently.
  • FTX general counsel Ryne Miller posted on Twitter the same evening that the company would expedite moving remaining assets to cold storage — meaning offline — because of the "unauthorized transactions," referring to the apparent hack.

  📌 Refrence: https://www.nerdwallet.com/article/investing/ftx-crash

  2️⃣ In order to more accurately assess this event on the crypto market and users, we considered the time frame of data analysis from October 15 onwards to also examine the activity of users before the collapse of FTX.

  3️⃣ 4 blockchains have been considered in order to check the volume and number of swaps in different DEXs after the collapse and bankruptcy of FTX. These chains are:

  Ethereum- Algorand- Solana- Osmosis

📝 Introduction

🟡 About FTX

• FTX is a cryptocurrency exchange founded by Sam Bankman-Fried in 2019, who served as CEO until Nov. 11. The exchange issues its own token, FTT, and was the fourth-largest crypto exchange by volume as of Nov. 9.

  \

🟡 What happened to FTX?

FTX and FTX.US crashed due to a lack of liquidity and mismanagement of funds, followed by a large volume of withdrawals from rattled investors. The value of FTX’s native token, FTT, plummeted, taking other coins down with it including Ethereum and Bitcoin, which reached a two-year low as of Nov. 9. Other exchanges have been affected by the FTX collapse including BlockFi, which filed for bankruptcy on Nov. 28.

🧐 Observations

• On November 8-10, the largest volume of swaps was recorded. These days, the largest number of unique users have used Algorand DEXs. On November 9, more than 26k swaps were registered on Algorand network.
• From the middle of October onwards, the number of users who have recotded Swap for the first time on Algorand network has gradually decreased.
• During the collapse of FTX, 2,940 new users have used DEXs on the Algorand network for swaps for the first time.
• The average number of unique swappers has decreased after FTX collapse. (788 vs. 742)
• The average number of swappers during the FTX collapse was higher than ever.
• Unlike the number of swappers, the number of swaps every day after November 12 has increased significantly compared to before the FTX bankruptcy. (9411 vs. 6055)
• The average number of daily swaps in the period from November 2 to 11 was more than any other time.
• The average daily swap volume also increased significantly after November 12 compared to before FTX bankruptcy. (500k USD vs 378k USD)
• On November 8-10, the average daily swap volume was about 2.9M $USD.
• After the collapse of FTX, the share of transactions with a value of less than $1 increased from 25.5% to 35.2%.
• After the collapse of FTX, the share of transactions between 1 and 10 dollars decreased from 45.9% to 42.5%.
• After the collapse of FTX, the share of transactions between 10 and 100 dollars decreased from 18.3% to 14%.
• After the collapse of FTX, the share of transactions between 100 and 1000 dollars decreased from 9.61% to 7.63%.
• In general, the average volume of each swap had an upward trend from October 15 to November 8 and a downward trend after this day.
• The total daily fee collected for transferring currencies from CEXs to other addresses has been on a downward trend since the collapse of FTX.
• From October 15 to the end of October, the number of transfers from addresses belonging to CEXs has gradually increased. Then, during the time period of FTX collapse, the number of transfers has been reduced. Then again, from November 12 to 24, the number of transfers increased. Finally, the number of currency transfers from addresses belonging to CEX to other addresses has decreased significantly in the past days.
• The volume of assets transferred from CEXs has grown significantly since the beginning of November.
• On November 10 and 25, respectively, 85 and 103 million dollars of assets were transferred from CEXs to other addresses. (Approximately 102M $USD of the assets that were withdrawn from CEX on November 25 are related to USDC currency.)
• On average, the volume of transfers of stablecoins such as USDC and USDT from addresses related to CEXs to other addresses has increased after the bankruptcy of FTX.
• The largest share of asset withdrawal from addresses belonging to CEXs is related to Circle exchange.
• In tinyman and algofi exchanges, the average total volume of daily swaps increased after the collapse of FTX.
• The highest volume and number of swaps were recorded on the tinyman exchange on November 8 and 9.

• The number of swaps increased significantly on November 8-10.
• The average number of daily swaps has decreased after the collapse of FTX.
• On November 9, the largest number of swappers interacted with different DEXs of the Ethereum blockchain.
• The average number of swappers has decreased after the collapse of FTX.
• During the collapse of FTX (November 2-11), the largest number of users interacted with DEXs. On November 8-10, the volume of swaps increased dramatically.
• The number of new swappers has gradually decreased since mid-October.
• Average daily swap volume has decreased after FTX collapse.
• The average volume of swaps on November 8-10 was more than 8 times the days before FTX collapse.
• The share of transactions with a value between 10 and 1000 dollars has increased slightly after the collapse of FTX.

🧐 Observations

• The average number of transfers from CEX addresses to other addresses increased after the collapse of FTX. (97.9k vs 66.56k)
• The average volume of currency transfers from CEX addresses also increased after the bankruptcy of FTX.
• The number of sender and receiver addresses of assets has also increased after the bankruptcy of FTX.
• The largest volume of asset transfers from CEXs was recorded on November 10.
• Among the different CEXs, the addresses belonging to Coinbase had the largest volume of asset transfers to other addresses. Binance and FTX exchange ranks second and third.
• The daily average withdrawal volume of stablecoins such as USDC, USDT, FRAX, BUSD and DAI from addresses belonging to exchanges to other addresses has increased after the bankruptcy of FTX.
  • USDC → Before: 2.88B $USD & After: 5.3B $USD
  • USDT → Before: 1.12B $USD & After: 1.74B $USD
  • FRAX → Before: 380.9k $USD & After: 929.7k $USD
  • DAI → Before: 45M $USD & After: 57.3M $USD
  • BUSD → Before: 439.84M $USD & After: 458.48M $USD

🧐 Observations

The status of various dexes of the Ethereum network after the collapse of FTX: 🟢: Increased 🟠: Decreased

• Among the different DEXs, all the Uniswap v2 indicators have decreased after the collapse of FTX.

  \

• On the other hand, among different DEXs, all Balancer indicators have increased after the collapse of FTX.

  \

• Except for Balancer, the volume of swaps has decreased in all DEXs after the collapse of FTX.

🧐 Observations

• The volume of swaps in the Osmosis chain increased significantly on November 8-10.
• The largest swap volume was recorded on October 28.
• The average daily swap volume in the Osmosis chain has decreased after the bankruptcy of the FTX exchange.
• The number of swappers also reached its highest value on October 28.
• After November 12, the number of swappers has decreased compared to before.
• The number of swaps has grown significantly on November 9, that is, during the collapse of FTX. But after this day, the number of swaps has gradually decreased.
• The number of new users has been decreasing since before the collapse of FTX.
• Before the collapse of FTX, most swaps had a value between 10 and 100 USD, while after the bankruptcy of FTX, most swaps had a value between 1 and 10 USD.

🧐 Observations

• The number of swappers has grown significantly on November 8-10.
• The number of swaps has increased significantly since the beginning of November, so that the number of swaps after the ftx bankruptcy is much higher than before.
• On November 10, the number of swaps has reached 589k transactions.
• The number of daily swaps in the Solana chain has increased by about 2.5 times after the bankruptcy of the FTX exchange.
• From the middle of October until the beginning of the events related to FTX, the volume of swaps was less than 50M $USD on all days, while on the 8th to 10th of November, a total of 666M $USD swaps were recorded in various DEXs of the Solana network.
• The number of users who used Solana DEXs for the first time on November 9 reached 11705 users.
• From mid-October onwards, except for November 8-10, the number of new DEX users has been decreasing.
• After November 12, most swaps had a value of less than $10 USD, while before the bankruptcy of this exchange, most swaps had a value between $10 and $1000 USD.