TokenInsight: A Review of the 2022 Cryptocurrency Exchange Industry, What Are the New Trends and New Patterns?

Author: TI Research

Original Title: "Crypto Exchanges 2022 Annual Report"

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 companies in the industry. As the most important segment of the Crypto industry, 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 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:

1) There are an overwhelming number of exchanges in the Crypto industry, making it nearly impossible to fully compile data from all exchanges;

2) The top ten exchanges we selected account for approximately over 95% of the market share, thus reflecting the overall market situation.

The annual trading volume of the 2022 Top 10 exchanges 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, Terra (LUNA) collapsed, plummeting 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, fell 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 one 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 dragged 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, and the bankruptcy of digital asset broker Voyager Digital.

3AC managed about $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 abandon helping the FTX exchange, and FTX announced a suspension of withdrawals. On November 9, the trading volume reached $317 billion (of which about $28 billion from 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 on the books. On November 6, CZ decided to sell approximately $580 million worth of $FTT (FTX's exchange platform 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.

1) After suffering multiple collapse events in the bear market, the competitive landscape of cryptocurrency exchanges has become polarized;

2) 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;

3) The biggest winner in 2022, Binance, added nearly 20% of market share over the year, increasing from less than 50% at the beginning of the year to nearly 65% at the end. Bybit's share growth closely followed, increasing by 5.4%;

4) 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 in annual total trading volume for spot trading are Binance, OKX, and Coinbase, while the top three for derivatives are Binance, OKX, and Bybit.

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

Binance and OKX are the top two in each ranking. Bybit, KuCoin, Gate, Kraken, and Bitfinex all made it into the top ten on both lists. Coinbase, Huobi, and Cryptocom only made it into the top ten for the spot trading list, while Bitget, BitMEX, and Deribit only made it into the top ten for the derivatives list. The trading volume generated by cryptocurrency derivatives is much 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 at the end, 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 had a slightly better return, 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 is undervalued.

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

This chart shows the spectrum of whether exchanges primarily engage in spot trading or derivatives trading. It shows 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 trading, 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 from 30% to 60%.

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

Note 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 these two products in the calculations. The limited derivatives trading offered by Coinbase is due to stricter requirements for necessary licenses to provide cryptocurrency derivatives trading, as a publicly listed company in the U.S. (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 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, a decrease of 27% compared to the beginning of the year.

1) In 2022's derivatives contract trading, the total open interest of the top 10 exchanges fluctuated between less than $40 billion and $19 billion, and the fluctuations were highly correlated with Bitcoin prices.

2) 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 scale shrinkage of 48.1% (Bitcoin's market cap shrank by 58%).

3) 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 was down about 41% from the peak daily open interest on April 5 of the same year.

4) When broken down by exchange, only Bitget achieved significant open interest growth, increasing from $841 million at the beginning of the year to $3.74 billion at the end, a growth of 344%. Other exchanges experienced varying degrees of decline in open interest.

5) OKX, Bybit, and KuCoin had relatively small declines in open interest, all less than 15%, at -10.28%, -14.57%, and -5.22%, respectively.

6) 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.

1) In 2022, the total trading volume of the top 10 decentralized exchanges (DEXs) reached $1.33 trillion, averaging 3.15% of the entire market.

2) 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.

3) It can be seen 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).

4) GMX gained the most market share increase in 2022, growing from 1.2% at the beginning of the year to 29.6% at the end, achieving a yearly growth rate of 28.4%, while Pancake suffered the largest share loss, dropping from nearly 20% to 3.3%, a loss of 16.6%.

5) The trend in DEX share changes indicates that new derivatives players like GMX and dYdX are more popular among users than OG AMM spot DEXs like Uniswap.

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

In 2022, DEXs 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 largest trading volume quarter. However, by the end of the fourth quarter, this number had dropped by 33%, stopping at 2.70%.

From the trend, it can be seen that both centralized exchanges and DEXs experienced significant declines in overall trading volume in the fourth quarter, mainly due to the FTX incident, which led to the evaporation of over $7 billion in liquidity after FTX announced 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 with the GLP pool. GLP is a basket of assets, approximately 50% of which are stablecoins, and the other half consists of 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.

The once top three exchange FTX completely collapsed within a week.

The bankruptcy of FTX is one of the largest collapses in cryptocurrency history, occurring within 10 days in November 2022.

1) On November 2, leaked financial documents from CoinDesk revealed that Alameda Research held a position worth $5 billion in FTT (FTX's native platform token);

2) On November 6, Binance CEO Changpeng Zhao announced the sale of all FTT holdings, valued at approximately $580 million;

3) On November 10, Binance decided not to rescue FTX from its liquidity crisis, and FTX suspended withdrawal functions;

4) On November 11, FTX filed for bankruptcy protection, and Sam Bankman Fried stepped down as CEO of FTX.

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

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

LEO grew by 3% in 2022, while OKB only fell by 5%. Excluding FTT, platform tokens issued by large exchanges performed better than 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 ratio of market cap to trading volume, 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 lowest at 13.5.

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

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

From the market cap to trading volume ratio, JOE, DODO, and DYDX have low valuations, with ratios of 1.8, 1.6, and 0.4, respectively. SUSHI, GMX, and CRV have relatively high valuations in terms of their trading volume. 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 a Cosmos application chain with independent nodes, while other projects are DApps (smart contracts) deployed on public chains.