Centralizing large amounts of liquidity on a few platforms is an important development with far-reaching implications for the entire cryptocurrency ecosystem.
The collapse of FTX has dealt a blow to the liquidity of crypto assets. Following the crisis, fiat payment networks Signet and SEN in the US also simultaneously announced their shutdown. This puts market makers in a difficult position, hindering efficiency.
For now, however, market makers are slowly regaining confidence and are starting to provide liquidity in a narrower range.
However, Kaiko’s latest research warns of a worrying trend that liquidity is increasingly concentrated on some exchanges since the collapse of FTX.
Specifically, five exchanges – Binance, Bitfinex, OKX, Coinbase, and Kraken – account for a significant 72% of Ethereum’s liquidity. In contrast, the remaining 41 exchanges account for only 28%. Before declaring bankruptcy, FTX accounted for nearly 40% of the liquidity.
Notably, the report also sheds light on the persistent liquidation leaving US-based exchanges over the past year. Since then, the cryptocurrency market share in the US has also dropped significantly. This is likely due to the regulatory crackdown by the authorities making global exchanges more attractive to market makers looking to avoid the uncertainties associated with the US market.
Going forward, it is more likely that liquidity consolidation will continue, not only for ETH but for all assets, as the crypto exchange space grapples with challenges in attracting funds. market makers. The struggle to maintain liquidity requires the exchange to examine more closely the factors driving this trend. At the same time, it raises questions about the overall health and stability of the cryptocurrency market.
In addition, concentrating liquidity on a select few exchanges can introduce risks, such as increased vulnerability to market manipulation, reduced trading opportunities, and limited access to retail investors.
For now, it remains to be seen how the regulator and industry participants will react to this emerging trend and whether measures will be taken to address the potential impacts on the dynamics. market force or not.