Uniswap Overtakes Coinbase, Is This Fierce Competition?

Key Points:

• Uniswap had significant spot market volume. For the second month in succession, the DEX outperformed Coinbase.
• In terms of operating mechanisms and influence, Uniswap and Coinbase have obvious differences.
• The emergence of Uniswap has fueled the growth and popularity of decentralized exchanges, while Coinbase plays an important role in crypto market compliance and oversight.

Currently, Uniswap is the largest decentralized exchange (DEX) in the crypto world. Because of its decentralization, investors can buy DeFi coins before they are listed on major exchanges easily. Not only that, the trading volume on the spot market of the decentralized exchange Uniswap has been higher than that of the famous centralized exchange Coinbase, making competition among centralized exchanges (CEX) with DEX becomes fairer.

Overview of Uniswap

For many years, centralized exchanges have been the backbone of the bitcoin economy. They reduce transaction speeds, have huge trade volumes, and are constantly improving liquidity. Yet, a parallel universe is emerging in the shape of trustless protocols. Transactions are not controlled by middlemen or custodians in decentralized exchanges.

Owing to the inherent limitations of blockchain technology, decentralized exchanges continue to struggle to compete effectively with centralized exchanges. Most decentralized exchanges have much potential for improvement in terms of performance and user experience.

Several developers have been brainstorming different approaches to create a decentralized exchange. Uniswap is a pioneering innovator in the sector. The functioning of Uniswap may be more perplexing than that of standard decentralized exchanges. Yet, it offers several other benefits.

The AMM mechanism facilitates transactions on the Uniswap exchange without the use of an order book; instead, the smart contract will act as an intermediary; the seller places the assets in a location known as the liquidity pool (LP), and the buyer will swap the assets they have with the assets in the pool via a smart contract.

Uniswap V3 is the most recent version of Uniswap, and it will be available on Mainnet on June 5, 2021. The purpose of this update is to increase capital efficiency by implementing new modifications such as:

• Centralized liquidity provision: enables liquidity providers to specify bespoke pricing ranges for the LP offering’s liquidity. In other words, liquidity will be concentrated in a price range where the bulk of deals occur.
• Various transaction fees: LPs will earn based on their liquidity contribution to take varying amounts of risk.
• Uniswap LP token as NFT: Since any user that deposits tokens into the pool may self-adjust the price range, each LP position on Uniswap is unique. As a result, an NFT represents each LP position.

Overview of Coinbase

Coinbase is one of the most well-known crypto exchanges in the market. It was founded in 2012 and is based in San Francisco, California, USA. Coinbase has offices in both New York and Tokyo. This exchange now has over 12 million members and provides services in over 35 countries. Coinbase is the exchange that has done the most to democratize cryptocurrency transactions, particularly by allowing you to acquire these virtual currencies using a bank card.

Brian Armstrong and Fred Ehrsam, the creators of Coinbase, launched the company. Despite its brief history, Coinbase rapidly gained popularity among users. It is more frequently known as a digital wallet across the globe.

Formerly, Coinbase transactions were entirely free; however, Coinbase now charges fees, which are fairly minimal when compared to the standard level of other e-wallet providers.

In essence, Coinbase is a marketplace where customers can buy and sell digital currencies, exchange them, and store and manage them. Moreover, this level now offers four major services to clients, including:

Customers who trade in virtual currencies should be assisted as follows: This is the most fundamental and often-used feature of the Coinbase exchange.

• Allow for electronic exchange GDAX is an online exchange that specializes in trading virtual currencies. Virtual currencies, like stock exchanges, may be bought, sold, or exchanged. The exchange will provide simple, user-friendly interfaces with real-time orders. In addition, charting tools, trading history, and an order procedure are available for monitoring, assessment, and analysis.
• Coinbase Commerce Service (e-commerce): A Coinbase service that enables users to do business from anywhere in the globe. This concept stems from mixing marketing with bitcoin. By taking all digital currency payments, regardless of borders, the operator will have total access to the worldwide customer database.
• Proprietary Digital Platform API: This platform assists customers in gathering the data required to create a bespoke interface. The parameters will be fine-tuned to each individual’s own experience and demands, guaranteeing that there is no overlap since everyone has their own criteria.

Coinbase has not experienced a large-scale security breach, but it has also faced some crises and challenges.

In 2019, a price flash crash occurred on the Coinbase Pro trading platform, causing the price of Bitcoin to plummet by 30% on the platform. Coinbase later said it was due to a trader placing an unusually large sell order on the platform, which sent the market price down. However, some traders questioned whether Coinbase had sufficient market monitoring and risk management measures in place to avoid such an event.

In addition, Coinbase has also faced regulatory challenges. In 2018, the U.S. Securities and Exchange Commission (SEC) launched an investigation into Coinbase, demanding it provides information about digital assets on its trading platform. Coinbase later stated that they cooperated with the SEC and took some measures on its trading platform to comply with relevant regulations.

On March 22, 2023, the SEC issued a Wells notice to Coinbase, a cryptocurrency trading platform, indicating that the regulator intends to bring charges against the company.

The notice reportedly focuses on Coinbase’s staking service, Coinbase Earn, Coinbase Prime, and Coinbase Wallet, the latter of three the company states is a technology, not an exchange, broker, or centralized platform.

Coinbase stated that the notice does not provide much information for the company to respond to and that it is confident in the legality of its assets and services. It also desires greater regulatory clarity and a crypto framework from the SEC to guide operators.

Although Coinbase has faced some challenges and crises, it has been committed to providing safe, reliable, and compliant cryptocurrency trading services and has maintained a leading position in the field of centralized exchanges in the cryptocurrency industry.

The battle between DEX and CEX

Recently, the decentralized exchange Uniswap’s spot market trading volume surpassed that of the well-known controlled exchange Coinbase. Uniswap and Coinbase should be seen as distinct components of the cryptocurrency ecosystem that collaborate to support the development and adoption of cryptocurrencies.

According to statistics supplied by The Block Research, the decentralized exchange Uniswap’s spot market trading volume in March 2023 reached $71.6 billion, which was 45% greater than the $49.4 billion centralized exchange Coinbase in the same month. The data also lays out proof that March was the best month for the DEX since January 2022. The rise in trading volume on DEXs like Uniswap is fair proof that users are steering toward decentralized exchanges.

While Coinbase’s trading volume climbed in March from $40 billion in February, it has been lower than Uniswap’s for two consecutive months, reflecting the rising and expanding significance of decentralized exchanges in the cryptocurrency industry.

Uniswap is a better and safer option for people who are acquainted with the underlying logic of the blockchain. It is not difficult for users to learn to utilize decentralized exchanges on their own in the event of a high degree of the Internet, which is why the trading volume of Uniswap is expanding day by day.

Yet, as centralized exchanges develop under supervision, retail investors’ assets may be insured, and the situation of exchange fraud has improved, potentially attracting more retail investors to trade.

Conclusion

While Uniswap and Coinbase are both cryptocurrency exchanges, their business methods and positioning are distinct, and they do not compete directly.

The data above only represent one facet of these two exchanges and cannot tell us anything about their growth and functioning. As a result, comparing these two platforms is pointless.

The creation of Uniswap has aided the growth and popularity of decentralized exchanges, while Coinbase has played a significant role in the cryptocurrency market’s compliance and monitoring. As a result, Uniswap and Coinbase should be seen as distinct components of the cryptocurrency ecosystem, working together to promote the development and popularization of cryptocurrencies.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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