Blockchain analytics firm Chainalysis has reported a significant shift of funds from centralized exchanges (CEX) to decentralized exchanges (DEX) following the collapse of Silicon Valley Bank (SVB).
In a March 16 blog post, Chainalysis explained that during times of market volatility, capital outflows from CEXs often spike, as users may worry that they will not be able to access their funds if the exchange crashes.
Hourly CEX-to-DEX outflows spiked above $300 million on March 11, shortly after SVB was shut down by California regulators, according to Chainalysis data. A similar trend was observed during the collapse of crypto exchange FTX last year, and there are concerns that the contagion could spread to other crypto firms.
However, data from Token Terminal, a blockchain analytics platform, suggests that in both cases, the surge in daily transaction volumes on the large DEXs was short-lived. This suggests that while users may temporarily flock to DEXs following an exchange crash, the shift is not necessarily long-term.
Notably, Chainalysis also reported a spike in purchases of the stablecoin USDC on DEXs, likely due to USDC being pegged to the U.S. dollar and thus providing a safe haven for users looking to park their funds during volatile times. How long will this trend continue? And whether it will have any lasting impact on the crypto market remains to be seen.
While the collapse of SVB may have been the immediate catalyst for this shift in user behavior, it also highlighted the potential risks associated with centralized entities in the crypto ecosystem. As the industry continues to mature, we are likely to see more users turn to decentralized exchanges to gain greater control over their funds and minimize counterparty risk they face.
