Centralised Exchanges

Findings

Key Findings - Grade Statistics

Methodology Updates Ensure Exchanges Adhere to Highest Standards Across Key Risk Areas

As of April 2024, AA-grade exchanges have seen a 43% decline since the last benchmark. Top-Tier exchanges have also decreased by approximately 14%, reflecting the tougher criteria required to achieve high scores in the latest benchmark and the superior performance of leading exchanges. Additionally, the dominant grade has remained a B in the last two iterations, indicating improvements within the Lower-Tier and overall better scores, despite the challenges in reaching Top-Tier status.

Top-Tier Exchanges Maintain Extreme Volume Dominance

Top-Tier centralised exchanges experienced a remarkable 775% surge in monthly volume, from ~$250bn in Oct-23, to ~$2.17tn in Apr-24. In contrast, Lower-Tier exchanges only experienced a 313% increase, from approximately ~$178bn to ~$737bn. Overall, Top-Tier volumes significantly outpacing Lower-Tier reflects the market’s growing demands for robust risk mitigation and optimal market liquidity, acting as a positive flywheel for onboarding new retail and institutional clients by meeting their needs.

Key Findings - Volume Trends

CEX Volumes Reach New All-time High Volumes in March

Centralised exchange volumes have maintained a consistent uptrend since the last Benchmark, growing from $677bn in October 2023, to over $3tn by the end of March, signalling a 345% increase and in an all-time high monthly volume for CEXs. This trend underscores the vital importance of assessing counterparty risk factors amongst exchanges, given the sheer level of volume flowing through their systems on a monthly basis.

AA & A Graded Exchanges Average Significantly Higher Volume

AA and A ranked exchanges account for 78% of the Daily Average Volumes across ranked exchanges during the collection period, whilst Top-Tier (BB+) make up over 85% overall. This shows that traders and investors prioritise volume and liquidity, especially given the high regulatory compliance, robust infrastructure, and optimal market quality on offer amongst the top exchanges; catering for both retail and institutional traders who require assurances about counterparty risk and the lowered cost of execution.

Key Findings - Market Integrity

Index Deviation Scores Highlight Erroneous Pricing

Using CCData’s CCIX BTC reference pricing, we can analyse exchanges which deviate significantly outside the volume weighted average price, detecting outliers and unusual trading activity. Coinbase maintains the tightest index deviation score, with an annualised volatility difference of 1.4% against CCIX. Independent Reserve struggled with a score of 15.8%, which likely indicates less market-making activity and more potential for wider spreads and deviations from key reference pricing such as CCIX.

Flash Crashes Persist on Centralised Exchanges

Flash crashes are swift, drastic price drops followed by instant rebounds, typically due to thin liquidity, exchange faults, or cascading liquidations. CCData shows Cex.io and Probit suffered the largest amount of flash crashes in the last 6 months, with 4 on record, followed by Bitexbook, Digifinex and Luno with 3. The most recent high-profile flash crash took place on Bitmex in March, where their XBT-USDT spot pair crashed to $8,900, a -86% deviation from spot and reference pricing, driven by 850BTC worth of spot market sells.

Key Findings - Liquidity & Execution

Spread is Significantly Varied Across Benchmarked Exchanges

Spread is a critical factor in assessing market quality and ensuring fair trading conditions. Based on our granular order book data, we identified Gemini and Bitmex displaying the highest spreads on their BTC Spot pairs amongst a sample, with spreads reaching as high as 0.372% and 0.476% respectively, contrasting Binance and OKX’s max spread of 0.0007% and 0.0011%.

Liquidity is Evaluated Via Multiple Adjustments

Top-of-Book Liquidity is vital for assessing market quality, given its impact on incurred slippage across key trading pairs. In this analysis, we compare liquidity and volume to identify the best exchanges for high-frequency trading across the top instruments on each platform. When adjusted for volume, Binance's 1% depth is similar to BingX, Kraken, and Coinbase, with only a 4% difference.

Key Findings - Regulatory Compliance

Record Number of Exchanges Are PEP & Sanction-Compliant

Exchanges within the Benchmark have hit a record-high in compliance with both Politically Exposed Persons (PEP) and Sanctions requirements, with 42% of exchanges complying with both. Adherence to these guidelines are required by regulators under AML policy including the US under OFAC/FinCEN, in the EU under 4AMLD and by the UK’s FCA.

VASPnet Identify the Top 5 Jurisdictions for VASP licenses

VASPnet data shows the United States and Canada have handed out the most licenses to exchanges, with 62 and 21 respectively. However, across all jurisdictions, Europe has approved 104, against North America’s 83 and Asia’s 34; highlighting the EU’s dominance in overall license provision, in light of upcoming MiCA regulations coming into force later this year.

Key Findings - Security and KYC Measures

Consistent Uptick in Security Certifications

With $66mn in CEX Hacks across Exchange Benchmark-assessed exchanges in the last 6 months, robust security practices are as important as ever. In this Exchange Benchmark, almost 45% of CEXs possess an ISO27001 or SOC2 Certificate, up from 38% in the last Benchmark; underscoring growing client demands for independent security audits.

67% of CEXs Employ Stringent KYC Measures

Our data shows that 67% of the CEXs in the benchmark have stringent KYC measures in place, prohibiting users to deposit or trade without government ID verification. Majority of the exchanges have adopted adequate AML compliance measures such as transaction monitoring and market surveillance systems to restrict the illicit uses of crypto assets through their platforms.

Key Findings - Security and KYC Measures

Less Than 50% of Exchanges Utilise Third-Party Custodians

The majority of exchanges within the Benchmark (57%) have failed to engage the services of a third party custodian. Custodians are regulated and audited, as well as being operationally designed to protect digital assets. Counterparty risk is adversely high in the industry, and can arise through human error, or shortcomings in technology or processes, and therefore engaging custodians is vital for the safety of customer deposits.

Off-Exchange Settlement Growing Amongst Top Exchanges

Off-Exchange Settlement is available in around 17% of evaluated exchanges, with almost all of them being designated as Top-Tier. Almost 50% of all Top-Tier Exchanges possess OES integrations. This highlights a growing institutional demand for customer assets to remain held in cold-wallet solutions, whilst maintaining instant access to native trading on exchanges.

Key Findings - Centralised Exchanges

Digital Asset Exchange Hacks Remain a Major Concern

Despite a series of high-profile hacks in 2022, concerns around the security of centralised exchanges remain, as bad actors continue to exploit poor security practices. In 2023, centralised exchange hacks have resulted in the loss of around $117 million in user funds.

Did you know?
The average KYC score for October 2023 was 3.2/4 compared to 2.8/4 and 2.4/4 in April 2023 and October 2022, respectively.

As regulatory scrutiny intensifies following the collapse of FTX last year, more centralised exchanges are starting to implement strict KYC rules, allowing only verified users to withdraw assets.