The third quarter of 2020 has seen the strong resurgence of decentralized finance (DeFi) on Ethereum. With it, the demand for decentralized exchanges (DEXes) surged, causing Uniswap to briefly overtake Coinbase Pro at one point.
Heading into 2021, Ethereum and decentralized exchanges would likely perform even better, quant trader Qiao Wang said.
Two Reasons an Ethereum and Decentralized Exchange Take Off in 2021 is Likely
From July to September, DeFi and decentralized exchanges saw a massive spike in demand.
The frenzy around yield farming, which mostly revolves around staking various cryptocurrencies including Ethereum to earn governance tokens, caused DEX volume to spike.
Since centralized exchanges undertake a rigorous verification process to list tokens, newly-emerging DeFi tokens typically do not get on exchanges in time.
Consequently, traders and DeFi users flock to decentralized exchanges, like Uniswap, to trade DeFi tokens.
When the yield farming craze was at its peak in September, the high user activity on decentralized exchanges clogged Ethereum. There was significant genuine demand from real users, a level that Ethereum had not seen before.
In 2021, Wang said the demand for decentralized exchanges could rise further due to the uncertainty around centralized exchanges.
In the second half of 2020, the cryptocurrency market saw KuCoin, BitMEX, and OKEx suffer negative events. KuCoin fell victim to a large-scale security breach, BitMEX was charged by the U.S. Commodities and Futures Trading