Decentralized finance (DeFi) has seen parabolic growth since the start of 2020, with the total value locked in these contracts, largely based on Ethereum, rising from $1 billion to $12 billion now.
Crucial to this growth has been decentralized exchanges (dexs). In 2017 and 2018, many thought that these applications were clunky, as transaction fees were high and the user experience was very slow and confusing.
But with the introduction of Uniswap and other decentralized exchanges, things began to change. At many points this past summer, the volume and liquidity on decentralized exchangesÂ surpassed that of top exchanges such as Coinbase.
This growth may not be done yet, though. Top analysts in the space think that Ethereum dexs will surge even higher in the weeks and years ahead. This should result in a rally in all of DeFi and likely ETH itself, which will benefit from this influx of interest in transacting in a decentralized manner.
Decentralized exchanges set to grow even more, analysts say
Crypto-asset analyst Qiao Wang thinks that two fundamental trends are going to send decentralized exchanges into overdrive in the months and year ahead.
First and foremost, Ethereum layer-two scaling solutions and layer-one solutions are starting to come online after months and years of development. Optimism is expected to roll out Optimistic Ethereum, which will enable DeFi transactions to take place on a more private, cheaper, and capable second layer.
Other firms such as Starkware andÂ Matter Labs are also workingÂ on promising scaling solutions that should result in better user experience.
The second reason why dexs could take off is that there have recently been a number of issues with centralized exchanges. South Koreaâ€™s top exchange KuCoin was reportedly raided by police. More recently,Â BitMEX was charged by the U.S. CFTCÂ over derivatives and anti-money laundering violations whileÂ OKEx suddenly shut down withdrawalsÂ due to a private key holder of the organization going offline.
â€œHard to overstate the importance of 1) Ethereum L2s and scalable L1s coming online, and 2) What happened to Kucoin/Bitmex/Okex over the last 2 weeks. Timing cannot be better for decentralized futures/swap exchanges to finally take off in 2021.â€
UniswapÂ may take the lead in this new era of dexs with the introduction of the third iteration of the protocol, â€œv3.â€
The team behind the protocol is expected to release an overhauled exchange that should improve the user experience considerably. The firm recently announced it raised a Series A round in August of $11 million, which was led by â€œAndreessen Horowitz with additional investments from USV, Paradigm, Version One, Variant, Parafi Capital, SV Angel, and A.Capital,â€ for this upgrade.