“Liquidity on decentralized exchanges is in the hands of a few large providers, and this reduces the degree of democratization of access to the DeFi market. These conclusions were shared by BIS analysts in the report. The researchers looked at the 250 largest liquidity pools in Uniswap V3 and concluded that a small group of players hold around 80% of TVL and make significantly more profit than retail participants. Adjusted for risk, the latter generally lose money. “These [великі] […]”, — write: businessua.com.ua
Liquidity on decentralized exchanges is in the hands of a few large providers, and this reduces the degree of democratization of access to the DeFi market. Such conclusions analysts shared BIS in the report.
Researchers looked at the 250 largest liquidity pools in Uniswap V3 and concluded that a small group of players hold about 80% TVL and earns significantly more profit than retail participants. Adjusted for risk, the latter generally lose money.
“These [великі] participants submit orders that mimic traditional bid-ask spreads, allowing them to make significantly larger profits—both in absolute and relative terms—compared to their [роздрібними] colleagues,” the experts emphasized.
According to the BIS report, the factors that have led to centralization in the traditional finance industry may be “inherited features” of the financial system and therefore also inherent in DeFi.
In 2023, Gauntlet experts noted an increase in centralization in the DeFi market. They found that among DEXs, four platforms control 54% of the market, and 90% of all assets in the liquid staking market are concentrated in the four largest projects.
As early as 2021, the head doubted the truth of decentralization of the DeFi segment SEC Gary Gensler:
“These so-called decentralized financial platforms are actually largely centralized. There is a group of entrepreneurs who run these platforms”
He noted that platform operators are interested in promoting their projects and receive significant benefits from this.
Economist Gordon Liao believes that a 15% premium to the commissions received is a small advantage compared to less skilled passive users.
In his opinion, the situation in traditional finance is much worse. The economist argued his position with a 2016 study, according to which individual liquidity providers are not sufficiently compensated for their role in the operation of the market.
Liao also disagreed with the thesis about the manipulation of orders:
“The tick range distribution is usually much larger than 1-2%. This is very different from “sending orders that simulate troubles and askas” as described in the abstract.
Despite the lack of decentralization, BIS researchers recognized that the DeFi market has significantly fewer legislative, operational, and technological barriers compared to its traditional counterpart.
We will remind, in October, Vitalik Buterin agreed with the need to lower the entry threshold for individual stakers in Ethereum in order to support decentralization.
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