Ethers (ETH) on exchanges have not reached such a low level since 2018. By contrast, DeFi platforms are amassing record and growing deposits.
Recent research highlighted that, since last year, ether holders, the Ethereum network’s digital asset, have chosen to withdraw their cryptocurrencies from centralized exchanges. The new destination of crypto assets is, in most cases, decentralized finance protocols (DeFi).
The relationship between both indices was highlighted by The Defiant, which also highlights that the 20.6 million ETH currently deposited in exchanges represents the lowest level since August 2018.
The data becomes stronger if one considers that in 2018 there were fewer ethers than now, so 20 million at that time represented 20% of the total. In 2022, with 120 million ETH in circulation, the exchange count barely reaches 17%, a percentage not experienced since 2016.
From Exchanges to DeFi
Where does the ETH that leaves the exchanges to move? According to the cited source, decentralized finance protocols are increasingly receiving previously deposited funds on deals.
According to another research led by Glassnode, there is currently more than 70 million ETH ($125 billion) locked in DeFi protocol intelligent contracts. Although the total figure varied throughout 2022, an upward trend appeared since mid-2021.
What does this trend of withdrawing Ethereum from exchanges mean?
Although there is no explicit reason that leads to this decision on the part of investors, there is a context that could support it. Below, we try to break down some possible causes.
Although their regulation has been debated for a long time, as CriptoNoticias has reported, DeFi represents a more private sphere for the investment of funds.
Unlike traditional financial systems, they do not need registration procedures or personal documentation to open an account; users have to open a wallet and operate it.
Another reason may be that DeFi platforms are offering services that the population is interested in and that, moreover, they prefer over traditional finance options. An excellent example of this situation is the loan of stable coins or decentralized exchanges (DEX) that do not rely on a central authority and allow trading of cryptocurrencies and tokens between peers without intermediaries.
In addition, these protocols increasingly diversify their offer. They are not limited to offering investments in exchange for a return but also allow trading tokens with leverage to boost profits or invest in liquidity pools in exchange for returns in the form of tickets, among other possibilities.
Finally, the intention of not having the ethers available to sell also indicates that traders think that its price will continue to increase. With this idea in mind, they prefer to have them in DeFi protocols generating returns and accumulating more for the future when their price rises.
By: Jenson Nuñez
