New Survey Shows Traditional Finance Exchanges Hold Different Views On Offering Digital Asset Services

Traditional finance exchanges maintain a divided stance on offering crypto-related products to their customers according to a new research report by the World Federation of Exchanges (WFE). 

The WFE released on Sept 5 findings from a survey it conducted with 29 respondents aiming to improve a wider understanding of the crypto market infrastructure, the evolution of trading platforms, and contrasting differences between centralized and decentralized cryptocurrency exchanges.

Per the report, 41% of the respondents (12 firms) currently offer crypto trading and asset management services to their clients while seven firms have plans to offer such services in the future.

In sharp contrast, a third of participants have no plans of offering crypto-related services in the future with some citing regulatory concerns and the fear of exposing users to fraudulent crypto startups.

The survey commenced a few weeks after the collapse of the Terra ecosystem which reportedly wiped off billions from the market opening the sector to tighter regulations.

Per the survey, 26% of participants project a huge growth in the digital assets market over the next five years. This increased adoption drive has been linked with renewed institutional investment and centralized financial firms offering tokenized assets to their customers.

The potential approval of a spot Bitcoin (BTC) ETF in the United States has also drawn a similar view from experts at Bernstein. 

Participants in the survey opine that they have recorded a higher demand from retail investors than their institutional counterparts. However, while retail clients demand stablecoins and non-fungible tokens, institutional investors demand custody and security-backed assets. 

CEX and DEX are driven by user trust 

The participants also highlighted the key factors driving the decision to trade on centralized or decentralized crypto exchanges ranging from asset custody, prices, and liquidity factors.

It stated that while there are 500 digital asset exchanges, 40% are decentralized making use of blockchain technology while others utilize Central Limit Order Books (CLOBs).

A number of centralized crypto exchanges use blockchain technology for settlement and custody purposes while trades are not handled directly on the blockchain to reduce transaction costs. 

On liquidity, the report notes that centralized exchanges record higher transaction volumes despite higher transaction fees than decentralized exchanges. 

The disparity in digital asset regulations has led to uncertain market conditions creating skepticism among investors and traditional firms. As more traditional investors trickle in, crypto executives call for a uniform framework of laws and best practices. 

The lack of uniform legislation has led to poor implementation of the know-your-customer (KYC) requirements by both centralized and decentralized exchanges. 

The WFE is made up of over 250 members across multiple jurisdictions. Notable members include NASDAQ and Switzerland’s SIX Group.