At the LA Blockchain Summit in early October, Sam Bankman-Fried, the CEO of crypto exchange FTX, said that a summer surge in volume on Ethereum-based DEXes was “bullshit”—a bullish few months, he said, was no guarantee of a bullish future.
It turns out Bankman-Fried, whose company, FTX, also operates a DEX called Serum, was correct. According to the crypto data company Dune Analytics, trading volume on Ethereum-based DEXes fell sharply throughout the month of October. Volume is down 45% in the past 30 days.
Decentralized exchanges are unlike Coinbase and Binance, so-called centralized exchanges. While centralized exchanges hold custody over your cryptocurrencies, decentralized exchanges do not. The most popular is Uniswap.
Weekly trading volume on these exchanges exploded over the summer, peaking at over $8 billion in late August, thanks in large part to decentralized finance protocols offering new incentives with the potential for huge returns.
On Decrypt’s podcast this week, Bankman-Fried went into detail about how he arrived at his conclusion.
What was happening on DEXes, he said, was roughly analogous to “trans-mining”, or transaction mining. Centralized exchanges sometimes reward traders with native tokens—Binance Coin, Huobi Token and so on—for using the platform.
“Trans-miners” attempt to trade against themselves just to earn these tokens, which they can sell for a profit. “Very little meaningful volume happened on these exchanges,” Bankman-Fried explained.
“The reason you ask how much volume an exchange has is to answer questions like: How important is it? How much liquidity does it have? How important is it for pricing? Where should someone be advised to trade? How great is its future? How much money is it making?”
None of those questions, said Bankman-Fried, were answered by the sort of “fake” volume numbers that resulted from trans mining, and that he claimed was roughly analogous to what happened with DEXes this summer, thanks to those new incentives.
Even on Uniswap, the most popular decentralized exchange, the numbers bear this out. Daily trading volume at the time of writing is just over $100 million, down from nearly $1 billion in September.
“Once [exchanges] stopped paying people to fake volume,” said Bankman-Fried of the trans mining phenomenon, “all the volume went away.”
Later in the podcast, he made the connection to decentralized exchanges explicit, with a caveat. “This isn’t true of all DEXes,” he admitted. “But it’s true of most.”