In This Article
How many users are actually leaving centralized exchanges (CEX), and can their decentralized counterparts (DEX) take the lead in the market? We explore this in the article.
How pressure from the US and the EU affects crypto exchanges
Cryptocurrency exchanges have long been perceived as analogous to traditional financial institutions, primarily banks. However, regulators are only beginning to actively undertake supervision, and their requirements are not fully understood by the market;
For example, everyone knows the problem of classifying various digital assets as securities in the US. On the one hand, American regulators have not developed special requirements for listing cryptocurrencies for crypto exchanges. On the other hand, they penalize platforms for violations of securities laws.
In 2023 alone, SEC initiated more than 40 investigations related to cryptocurrencies, including lawsuits against exchanges Coinbase, Kraken and Binance. In 2024, of the major platforms, Crypto.com and KuCoin were added to the list.
The CFTC has not lagged behind. Time after time, the commission brought claims related to commodity futures trading, which the regulator believes some cryptocurrency-related exchange products are.
As a result, Binance was fined record amounts on charges of derivatives-related violations, KuCoin agreed to a fine of nearly $300 million, BitMEX paid $100 million, and Bittrex generally left the market.
The second aspect of the pressure on exchanges is the anti-money laundering and anti-terrorist financing (AML) requirements. All exchanges in regulated jurisdictions must comply with AML/KYC procedures, but it is not always clear to regulators how crypto platforms fulfill these obligations.
In the EU, where Mica regulations are in place and AMLA operates, the crypto business has started talking about over-regulation, but global crypto exchanges still prefer to adapt to the new requirements rather than leave the European market. Platforms are implementing FATF Travel Rule, delist disputed tokens, obtain licenses in every jurisdiction of presence, but still not closing down.
Why big platforms are losing audience
Despite all the problems, trading volumes on centralized platforms continue to grow. This is due to an increase in the number of active users, the launch of new products, an increase in the value of major cryptocurrencies and an improved regulatory environment in a number of regions;
At the same time, dissatisfaction with centralized exchanges is also growing. Large CEXs are losing user confidence for several reasons:
- centralization of decentralized finance and regulatory pressure. Users are unhappy that they are, in effect, in a financial institution like a bank. There is no anonymity, no freedom, but there is a longing for the times when it was all there;
- high percentage of loss-making tokens after listing. Since the start of 2025, about 90% of new digital assets have brought holders losses, reducing confidence in the selection of projects on the exchange. Scandals with listing, accusations of prioritizing revenue over project quality, and problems with stablecoins, losing stability, have undermined the reputation of the industry in general and the CEX in particular;
- hacks and major thefts. Attacks like the one faced by Bybit heighten security concerns.
All this leads to the fact that some customers are thinking about leaving to alternative exchange methods or decentralized exchanges. But, apparently, these are still a minority, and CEX remains the main player.
Will DEXs save the market
The DEX market is much smaller than the CEX and will remain so. There are many reasons for this, both technical and regulatory;
First, the use of DEX itself is more complex and involves certain technical risks, such as vulnerabilities in the smart contract code or user error in linking a wallet and placing an exchange request. Second, decentralized exchanges are probably even more vulnerable to hacking than CEX;
Second, decentralized exchanges are probably even more vulnerable to hacking than CEX. According to Shard, DEX hacking losses exceeded $200 million in 2024, and the number of attacks has increased. There has been an increase in the use of bridges to convert stolen tokens into more liquid and common cryptocurrencies such as BNB, ETH, USDT.
In addition, 2024 crosschain bridges have become an even more attractive target for hackers, as they often manage significant amounts of funds. Losses from attacks can reach millions of dollars, as in the case of Alex Labs ($4.3 million) and Socket ($3.3 million).
Plus, decentralized exchanges are also a focus for regulators. The EU plans to develop rules for DEX by 2026, and in the U.S. in 2024 they even managed to issue a law that obliged them to report on user transactions. However, after Donald Trump came to power, this rule was canceled;
Whether CEXs can adapt to the new requirements
Decentralized exchanges will not be able to replace centralized platforms, as regulation is also about investor protection, understanding who to claim against and, ultimately, the safety of funds;
The figures speak for themselves: the daily trading volume on CEX reaches $30-70 billion, while the similar volume on DEX stays within a few billion. In addition, centralized exchanges offer users various financial services in a simple package - this includes trading derivatives of various kinds, as well as deposits and lending. DEX cannot boast such diversity;
Finally, cryptocurrency is only considered truly "clean" if it came from a centralized, regulated exchange. Not every exchange is willing to accept assets from DEX for fear that such platforms are being used to launder money from hacker attacks;
Conclusion
Any changes in regulation have a negative impact on the availability of cryptocurrency services, but most are ready for it. As an example - the EU, where exchanges fulfill the requirements of MiCA and anti-money laundering legislation;
Travel Rule, which limits the ability to deposit funds from services, works in the EU. The business is not dead from this and does not plan to, and users remain on the exchanges to which they are accustomed.
