In a recent report, leading data analytics firm Kaiko placed the concentration of liquidity in the crypto market under scrutiny. The report delves into the details of liquidity distribution across various exchanges amid market fluctuations and multi-year lows in trading volume and volatility.
Kaiko acknowledges that highly concentrated crypto markets possess both advantages and disadvantages. On the positive side, they provide a concentrated source of liquidity, benefiting average traders.
However, the firm claims the concentration can also pose a significant risk to the industry, as exemplified by the FTX collapse. It argued that many centralized exchanges lack fundamental safeguards for traders in the event of failures, hacks, or market manipulation.
Kaiko claimed to compile data on average 1% market depth and cumulative trade volume for Bitcoin (BTC) and Ethereum (ETH) for this report. The firm also took account of over top 28 cryptocurrencies by market capitalization. Its findings revealed a concentration of liquidity that has intensified over time.
According to Kaiko, Binance became the dominant player in 2023 by commanding 30.7% of the global market depth. It also mentioned that the exchange accounted for 64.3% of global trade volume. Meanwhile, the report showed that the top eight exchanges collectively control 91.7% of market depth and 89.5% of trading volume.
Source: Kaiko report
Furthermore, the report noted that Binance’s market share in spot volume rose from 38.3% in 2021 to 64.3% in 2023. Kaiko attributed the increase partially to the exchange’s zero-fee trading promotion.
While the concentration of market depth for Binance decreased from 42% to 30.7%, Kaiko suggested that the promotion had a more pronounced impact on trading volume than market depth. The other exchanges that command over 90% of global market depth in 2023 include OKX, Bitfinex, Coinbase, KuCoin, Kraken, and Bybit.