A review of crypto-trading infrastructure

Around the world, there are currently more than 500 crypto-currency trading platforms, many of which also facilitate the trading of other crypto-assets and offer related products and services. The rapid development of these platforms and the technological innovations they rely on, their lack of regulatory authorisation and transparency, and the volatile nature of crypto-currencies have sparked questions and concerns about the quality and stability of these markets and the potential implications for mainstream finance. Regulators are looking closely at how these markets should be regulated so that innovation is not constrained and investors are protected.

As part of its mission to ensure that technology is an enabling, effective, and powerful force for good in the financial markets, the WFE is conducting a two-part research project to improve our understanding of the crypto market infrastructures and contribute to the discussion around the benefits and risks they entail. This report, which is the first part of this research, presents the results of a survey that the WFE conducted among its members and affiliates in 2022. The report offers a snapshot of the evolution of crypto-trading platforms across different jurisdictions and reports the exchanges’ engagement with these developments and their views on the future opportunities or challenges that these new technologies bring. We also provide an overview of the setup and operation of crypto-trading platforms, contrasting the models of centralised platforms (CEXs) with those of the decentralised platforms (DEXs). We study the implications that the differences in model design between DEX and CEX have on liquidity provision, price discovery and the custody of assets; and we review the academic literature findings about the market microstructure of these platforms. In addition, we discuss what these differences may imply in terms of three fundamental aspects of financial markets regulation: anti-money laundering, prudential regulation and financial stability, and investor protection.