The World Federation of Exchanges (WFE) recently conducted a survey among its member exchanges to gauge their stance on cryptocurrency-related products and services.
This survey, carried out between May and July 2022, included responses from 29 member exchanges, offering valuable insights into the industry's stance on crypto-related offerings.
The findings revealed a mixed landscape among traditional financial exchanges when it comes to embracing crypto-related products and services.
Out of the 29 exchanges surveyed, 41 per cent have already ventured into the world of cryptocurrency by offering various crypto-related products and services. These offerings span a range of options, from accepting cryptocurrencies as a form of payment to providing crypto futures and options contracts, digital asset platforms, or crypto-related indices. However, the majority, comprising 17 exchanges (59 per cent), have chosen to stay on the sidelines and have not yet entered the crypto arena.
The survey also shed light on future plans within the industry. Among the 17 exchanges that have not yet ventured into the crypto space, only seven have concrete plans to introduce crypto-related offerings in the future. This cautious approach among some traditional exchanges is driven by concerns related to regulatory uncertainties, market volatility, and cybersecurity risks associated with cryptocurrencies.
Regulatory concerns emerged as a significant obstacle for exchanges considering entry into the crypto market. It's important to note that the survey was conducted prior to the final approval of MiCA (Markets in Crypto-Assets) regulations in the EU, which may have an impact on exchanges' perspectives regarding regulatory clarity.
Another interesting revelation from the survey was the distinction between retail and institutional demand for crypto products. Retail investors displayed a stronger interest in non-fungible tokens (NFTs), other utility tokens, and stablecoins. In contrast, institutional investors exhibited a more pronounced preference for NFTs, security tokens, and custody services.
Exchanges that have already entered the crypto space have primarily focused on offering derivatives, security tokens, and indices. These product offerings appear to align with the evolving needs of both retail and institutional investors.
The survey also delved into the differences between centralised exchanges (CEXs) and decentralised exchanges (DEXs). It was noted that CEXs typically enjoy higher liquidity and better price discovery thanks to their use of central limit order books (CLOBs). DEXs, on the other hand, often rely on algorithmic automated market makers (AMMs) and liquidity pools to avoid the blockchain gas costs associated with updating order books. While DEXs were found to have higher transaction costs, especially for smaller transactions, they proved cost-effective for larger trade sizes.
In terms of mainstream adoption expectations, the survey's respondents were somewhat cautious in their outlook, with only around a quarter anticipating that crypto assets would achieve mainstream adoption within the next five years. This suggests a measured approach among traditional exchanges regarding the integration of cryptocurrencies into the broader financial landscape.
Beyond the specific realm of crypto offerings, the survey highlighted that exchanges view blockchain technology as an opportunity to explore new revenue sources and enhance investor choice.
Apart from regulatory challenges, respondents also voiced concerns related to reputational risks and market infrastructure conditions, which are additional factors influencing their participation in the crypto market.
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