In traditional finance (TradFi), market makers and high frequency traders act as intermediaries on exchanges. Decentralized Finance (DeFi) was meant to provide an alternative, with retail investors providing liquidity in a crowdsourcing manner. The Bank for International Settlements (BIS) was curious about the extent of disintermediation, so it crunched the data on decentralized exchange (DEX) transactions. It found that sophisticated players dominate and are equivalent to professional intermediaries in TradFi.
That said, a sophisticated player in the crypto world could still be a spotty teenager working in their parent’s basement, albeit a wealthy one. So from that perspective, DeFi is democratized.
Despite retail investors making up 93% of DEX liquidity providers (LPs), a few larger actors provide 65-85% of the liquidity on DEXs. They also dominate profits, making an average net return of 3 basis points more daily. That’s equivalent to 11.65% more annually compared to retail LPs. While the average position of a retail investor is $29,000, for the professionals, the figure is $3.7 million.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
