TokenInsight: Crypto Exchange Annual Report 2022

Source: TI Research

2022 was a tumultuous year for the Crypto industry. This year, we truly experienced the transition from a bull market to a bear market. In addition to the significant price drops of almost all cryptocurrencies, there were frequent occurrences of mass layoffs, bankruptcies, and even collapses within the industry. As the most important segment of the Crypto industry, the changes in trading volume and market share of exchanges are the most direct indicators of the industry's rise and fall.

As a rating and research company in the Crypto industry, TokenInsight has been tracking data on cryptocurrencies and exchanges. We have summarized the performance of the exchange industry over the past year, selecting the top ten centralized and decentralized exchanges, hoping to understand the changes of the year and the competitive landscape of the exchange market through the variations in data.

The following data is a summary of the top ten exchanges selected by TokenInsight and does not include the total trading volume data of all exchanges. The reasons for this approach are mainly twofold:

• The number of exchanges in the Crypto industry is extremely large, making it nearly impossible to fully compile data from all exchanges.
• The top ten exchanges we selected account for approximately 95% of the market share, thus reflecting the overall market situation.

The annual trading volume of the Top 10 exchanges in 2022 was $40.87 trillion, a decline of over 50% compared to 2021.

In 2022, the total trading volume (spot + derivatives) of the top 10 centralized exchanges reached $40.87 trillion, a decline of over 50% compared to 2021. There were three peaks in daily trading volume throughout the year, occurring in May, June, and November.

The highest peak in daily trading volume occurred on May 12. On that day, the collapse of Terra (LUNA) caused its price to plummet from over $80 to a few cents, resulting in a daily trading volume of $352.36 billion, the highest of the year.

The fall of Terra: On May 7, the algorithmic stablecoin terraUSD (UST), valued at $18 billion, began to fluctuate significantly, dropping to $0.35 on May 9. Its value-supporting token, the native coin of the Terra chain, LUNA, plummeted by 96% to nearly zero by May 12. At the same time, Terra's largest DeFi protocol, Anchor (which provided a 20% interest on UST holdings), saw its total locked value (TVL) shrink by $11 billion in a single day.

After the collapse of Terra, Three Arrows Capital (3AC), one of the most famous crypto hedge funds founded by Su Zhu and Kyle in 2012, went bankrupt just 35 days later (on June 14) due to losses from LUNA. The bankruptcy liquidation of 3AC not only pulled Bitcoin's price down by 15.8% (with total market trading volume soaring to $290 billion on June 14) but also triggered massive losses for cryptocurrency exchanges like AAX and FTX, as well as lending institutions like Celsius, Genesis, and BlockFi, along with the bankruptcy of digital asset broker Voyager Digital.

3AC managed approximately $10 billion in assets in March 2022. In February, it invested nearly $200 million in LUNA and held a significant position in the Anchor protocol.

The third peak in daily trading volume occurred on November 9, when Binance CEO Changpeng Zhao (CZ) decided to withdraw support for the FTX exchange, which announced a suspension of withdrawals. On November 9, the daily trading volume reached $317 billion (of which about $28 billion on FTX was paper trading that could not be withdrawn!). On the same day, Bitcoin's price fell below $16,000.

On November 2, a leaked financial document from Alameda Research, a cryptocurrency trading company founded by FTX founder SBF, revealed that it had a dirty close relationship with FTX's accounts. On November 6, CZ decided to sell approximately $580 million worth of $FTT (FTX's exchange token), triggering a series of cascading events for FTX.

Binance's market share increased from 48.9% at the beginning of the year to 64.1% at the end of the year, firmly holding the top position in the market.

• After suffering multiple collapse events in the bear market, the competitive landscape of cryptocurrency exchanges has become polarized.
• Most of the share increase directly came from the collapse of FTX. The 7.6% share that originally belonged to FTX flowed to other exchanges.
• Binance, the biggest winner of 2022, gained nearly 20% of market share over the year, increasing from less than 50% at the beginning of the year to nearly 65% by the end. Bybit followed closely with a 5.4% increase in share.
• OKX, KuCoin, Coinbase, Gate, and Kraken were relatively less affected by Binance's acquisition. Their shares all decreased by less than 3%.

The top three exchanges by annual total trading volume are Binance, OKX, and Coinbase; the top three in derivatives are Binance, OKX, and Bybit.

When breaking down trading volume into spot and derivatives, the rankings of the top 10 exchanges vary slightly.

Binance and OKX are the top two in both lists. Bybit, KuCoin, Gate, Kraken, and Bitfinex made it into the top ten on both lists. Coinbase, Huobi, and Cryptocom only made it into the top ten for spot trading, while Bitget, BitMEX, and Deribit only made it into the top ten for derivatives. The trading volume generated by cryptocurrency derivatives is significantly higher than that of spot trading. Therefore, Bybit ranks third in the comprehensive list, while Coinbase ranks only seventh.

Coinbase's stock price fell much more than its trading volume.

Coinbase's stock price plummeted from $251.05 at the beginning of 2022 to $35.39 by the end of the year, a drop of 85.90%, significantly underperforming the market. The S&P 500 index fell by 18.11% in 2022, while the Nasdaq index dropped by 33.47%. Even $DOGE performed slightly better, only falling by 59.89%.

However, Coinbase's trading volume did not decline as much. Compared to the first quarter of 2022, Coinbase's trading volume in the fourth quarter only decreased by 51.97%. The stock market's reaction may have been excessive, and Coinbase's stock price appears undervalued.

Bybit primarily focuses on derivatives trading, accounting for 95%, while Cryptocom, Bitfinex, and Kraken focus mainly on spot trading.

This chart shows the spectrum of whether exchanges primarily focus on spot trading or derivatives trading. It indicates that in 2022, Bybit was the exchange with the most derivatives trading among the top 10, with 95% of its trading volume coming from derivatives, followed by OKX (86% from derivatives) and Binance (75% from derivatives).

KuCoin, Gate, and Huobi are relatively in the middle, with contributions from spot trading volume ranging between 30% and 60%.

In contrast, Bitfinex and Kraken heavily rely on their spot trading business, as over 70% of their trading volume in 2022 came from spot trading.

It should be noted that as of August 29, 2022, Coinbase Derivative Exchange only offered two derivatives, namely nano Bitcoin futures contracts (BIT) and nano Ethereum futures contracts (ET). Due to the small trading volume of these two products, they do not show a significant distinction from other products, so this report does not include them in the calculations. The limited derivatives trading offered by Coinbase is due to stricter requirements for the necessary licenses to provide cryptocurrency derivatives trading, as it is a publicly listed company in the United States (which are still lacking).

Bybit and Bitget captured the most derivatives trading market share after the FTX collapse.

In terms of derivatives, Bybit and Bitget benefited the most from the collapse of FTX. FTX, which ranked third at the beginning of the year, disappeared from the market starting in November 2022. Bitget's share increased from 3% to 11%, while Bybit's share rose from 8% to 11%.

Binance's dominance slightly decreased from 59% to 58%, while OKX's second place became less stable, with its share dropping from 20% to 14%. Surprisingly, Binance and OKX failed to capture market share from FTX.

Open interest shrank to $20.1 billion alongside the decline in Bitcoin prices, down 27% from the beginning of the year.

• In 2022, the total open interest of the top 10 exchanges in derivatives trading fluctuated between just under $40 billion and $19 billion, and this fluctuation was highly correlated with Bitcoin prices.
• The highest daily open interest in 2022 reached $37.89 billion (on April 5, when Bitcoin was priced at $46,600), while the lowest daily open interest hit $18.6 billion (on July 2, when Bitcoin was priced at $19,400), showing a massive shrinkage of 48.1% (Bitcoin's market cap shrank by 58%).
• By the end of 2022, the total daily open interest of the top 10 exchanges had decreased by 27.1% compared to January 1 of the same year, and it was approximately 41% lower than the peak daily open interest on April 5 of the same year.
• Breaking it down by each exchange, only Bitget achieved significant open interest growth, increasing from $841 million at the beginning of the year to $3.74 billion by the end of the year, a growth of 344%. Other exchanges experienced varying degrees of decline in open interest.
• OKX, Bybit, and KuCoin saw relatively small declines in open interest, all under 15%, at -10.28%, -14.57%, and -5.22%, respectively.
• Bitfinex, Kraken, BitMEX, Gate, and Binance were significantly affected, with their open interest decreasing by 93.12%, 76.83%, 67.43%, 61.55%, and 44.12%, respectively, by the end of 2022.

The total annual trading volume of the Top 10 DEXs was $1.3 trillion, with GMX showing the largest increase.

• In 2022, the total trading volume of the top 10 decentralized exchanges (DEXs) reached $1.33 trillion, averaging 3.15% of the entire market.
• Throughout the year, there were five peaks in daily trading volume exceeding $10 billion. Most of these peaks were related to key events, occurring on: January 22 ($11.7 billion), February 15 ($17.46 billion), April 12 ($13.7 billion), May 10 to May 13 (over $12 billion), and November 10 ($10.05 billion).
• It can be observed that Uniswap V3's dominance has been weakened by dYdX and GMX. By the end of 2022, its share dropped from 31.1% (first) to 23.4% (third).
• GMX gained the most market share increment in 2022, growing from 1.2% at the beginning of the year to 29.6% by the end, achieving a yearly growth rate of 28.4%, while Pancake experienced the largest share loss, dropping from nearly 20% to 3.3%, a loss of 16.6%.
  The trend in DEX share changes indicates that new derivatives players like GMX and dYdX are more favored by users compared to OG AMM spot DEXs like Uniswap.

The market share of DEXs was 3.15% for the year, showing an overall downward trend, with a slight increase in Q4 due to the FTX incident.

The performance of DEXs in 2022 showed a downward trend in both trading volume and market share.

In the first quarter, DEX's share exceeded 4.05%. The first quarter was also the quarter with the highest trading volume. However, by the end of the fourth quarter, this figure had dropped by 33%, stopping at 2.70%.

From the trend, it can be seen that the overall trading volume of both centralized exchanges and DEXs significantly decreased in the fourth quarter, mainly due to the FTX incident, which caused over $7 billion in liquidity to evaporate after FTX announced its bankruptcy.

GMX exchange rose against the trend, with trading volume in Q4 increasing by 39% compared to Q1, and the platform token $GMX nearly doubled.

GMX emerged in 2022 as an important player in the DEX space. GMX launched on Arbitrum on September 1, 2021. It offers zero-slippage spot and margin trading by allowing users to trade against the GLP pool. GLP is a basket of assets, with about 50% being stablecoins and the other half being cryptocurrencies like $BTC (15%) and $ETH (35%). GLP serves as the counterparty for every trade on GMX.

GMX's trading volume increased from $13.79 billion in Q1 to $19.19 billion in Q4, a growth of 39.17%, which is remarkable given that almost all other exchanges experienced a decline in trading volume. GMX's governance token $GMX nearly doubled in 2022, rising from $21.69 to $41.18.

FTX, once one of the top three exchanges, completely collapsed within a week.

The bankruptcy of FTX is one of the largest collapses in cryptocurrency history, occurring within ten days in November 2022.

• On November 2, leaked financial documents from Alameda Research revealed that Alameda held a position worth $5 billion in FTT (FTX's native platform token).
• On November 6, Binance CEO Changpeng Zhao announced the sale of all his holdings of FTT, valued at approximately $580 million.
• On November 10, Binance decided not to rescue FTX from its liquidity crisis, and FTX suspended its withdrawal function.
• On November 11, FTX filed for bankruptcy protection, and Sam Bankman Fried stepped down as CEO of FTX.

Among exchange tokens, FTT, CRO, WRX, BTR, and ASD all fell by over 80%, while only LEO showed an increase.

In 2022, almost all exchange tokens suffered significant losses. FTT, CRO, WRX, BTR, and ASD all dropped by over 80%, while LEO and OKB performed relatively strongly.

LEO grew by 3% in 2022, while OKB only declined by 5%. Excluding FTT, the platform tokens issued by large exchanges outperformed those from smaller exchanges. For example, HT, GT, and BNB also experienced declines, but their performance in 2022 was better than that of BTC and ETH.

From the market cap/trading volume ratio perspective, a higher ratio indicates a higher valuation. HT, DYDX, KCS, and GT have ratios <1, suggesting they may be undervalued. CRO, BNB, and OKB have ratios >1, while LEO ranks last with a ratio of 13.5.

Among decentralized exchange tokens, GMX stood out, while others fell by over 50%.

Similar to centralized exchange tokens, the prices of decentralized exchange tokens also suffered significant losses in 2022, except for GMX. The industry leader UNI fell by 69%, while other projects experienced even greater declines. JOE performed the worst, dropping by 94%. On the other hand, GMX's price stood out, nearly doubling in 2022 with a 91% increase.

From the market cap/trading volume ratio perspective, JOE, DODO, and DYDX are undervalued, with ratios of 1.8, 1.6, and 0.4, respectively. SUSHI, GMX, and CRV have relatively high valuations based on their trading volumes. OSMO is the most overvalued project, with a ratio of 25.8.

It should be noted that DYDX uses an off-chain order book and matching engine but settles on-chain, so it is not considered a fully decentralized exchange. OSMO is an application chain in Cosmos with independent nodes, while other projects are DApps (smart contracts) deployed on public chains.