1. The Cyclical Struggle: Why DEXs Couldn’t Catch Up (Yet)

An examination of successive market cycles reveals the progressive maturation of DEX infrastructure and how each one contributed to where we stand today.

2017–2018: The Experimentation Era

Early DEXs like @EtherDelta operated directly on Ethereum Layer 1. Settlement required minutes, user interfaces were primitive, and liquidity remained inadequate. In contrast, Binance scaled like a Web2 app which was fast, liquid, and user-friendly, attracting both retail and institutional users rapidly.

DEX market share: ~0% CEX market share: ~100%

This early phase proved a critical point: decentralization was possible, but performance and usability were major barriers.

2020: The DeFi Summer Breakthrough

The launch of @Uniswap's AMM (Automated Market Maker) model was revolutionary. It removed the need for order books and let anyone provide liquidity permissionlessly. This represented the first substantive architectural innovation in DEX design, but it still catered mostly to long-tail tokens, not majors with deep liquidity.

As Ethereum congestion worsened, gas fees spiked from under 20 gwei to over 400 gwei, making every trade expensive. Interfaces lagged, and serious traders stayed loyal to CEXs like Bybit or Binance.

DEX market share: 0.33% CEX market share: 99.67%

To counter the liquidity problem, Uniswap V3 introduced concentrated liquidity pools in 2021, an architecturally sophisticated approach that allowed LPs to allocate liquidity within custom price ranges. While impermanent loss (IL) still persisted which kept many from providing liquidity for small tokens, this was a massive step forward. DEXs transitioned from experimental protocols to viable trading venues for specific market segments and a subset of traders.

2022: The Post-FTX Wake-Up Call

When FTX collapsed in November 2022, it sent shockwaves through the industry. Billions in customer funds vanished overnight, and trust in centralized custodians shattered. For weeks, “not your keys, not your coins” trended across crypto Twitter as traders rushed to self-custody.

DEXs like Uniswap and dYdX saw trading volume spike following the crash, Uniswap volume crossed $5B and dYdX had a 400% volume spike as users rapidly migrated from centralized platforms. Yet, despite this momentum, core challenges persisted — poor wallet UX, fragmented liquidity across chains, and the lack of fiat ramps meant user behavior normalized as immediate concerns dissipated, with many returning to centralized platforms.

DEX market share: ~5% CEX market share: ~100%

In response, the ecosystem innovated further: cross-chain Uniswap routing, better wallet UX through wallets like @Rabby_io and @phantom.

However, matching CEX-grade latency still felt impossible. Each cycle delivered incremental improvements but the performance differential remained substantial. Blockchains simply couldn’t yet support professional-grade trading, order book architectures with ultra-low latency represented capabilities fundamentally incompatible with AMM design constraints.

2025: The Turning Point

The 2025 market environment presents a qualitative shift. For the first time, foundational infrastructure has matured sufficiently to support true competition. High-performance blockchains, onchain Central Limit Order Books (CLOBs), direct fiat integrations, and near-CEX latency have been integrated in the onchain protocols. Perp DEXs like @HyperliquidX, @tradeparadex, and @Lighter_xyz are offering onchain trading experiences approaching functional parity from centralized platforms.

Liquidity aggregation, faster block times, and unified margin systems mean traders can execute strategies from spot to derivatives directly onchain without the friction previously associated with onchain execution.

DEX market share: ~19% (23% at the peak in Q2) CEX market share: ~81%

While parity has not been achieved, DEXs have transcended their status as alternatives to emerge as direct competitors.

2025 by the Numbers: CEXs Still Rule, But DEXs Are Catching Up Pretty Fast

The numbers tell a clear story, while centralized exchanges (CEXs) continue to dominate global liquidity, DEXs have been closing the gap cycle after cycle, quarter after quarter. From spot to derivatives, every segment shows signs that trading is gradually moving onchain.

• In spot markets, DEXs captured 19% by the end of Q3 2025 from 10.5% in Q4 2024

• In Futures, DEXs captured about 13% of the total market share by the end of Q3 2025, growing from 4.9% in Q4 2024

• In Spot, DEXs reached a record $1.43 trillion in spot trading volume in Q3 2025, a 43.6% QoQ increase from $1 trillion in Q2 2025. This surpasses the previous all-time high of about $1.2 trillion in Q1 2025.

• DEX perpetual swaps volume expanded substantially in 2025, reaching $2.1 trillion cumulative onchain by Q3, 107% increase from Q2 2025 and outpacing spot volume on DEXs.

• CEX spot volume is estimated at $5.4 trillion+ in Q3, maintaining dominance, 25% growth from Q2 2025

The directional trend demonstrates sustained acceleration. DEX spot volumes rose 43.6% quarter-on-quarter and 33% year-on-year, while perpetual trading exploded more than 5x over the past 12 months, growing from just 3.45% to 16.7% of total futures activity. If the current trajectory continues, 2025 represents an inflection point in DEX market positioning.

Adoption Patterns

While DeFi adoption is steadily expanding, its growth is not uniform across regions or user segments. Different markets, user profiles, and institutional behaviors are shaping how decentralized finance evolves globally. The following patterns highlight where adoption is gaining momentum, how professional and retail users differ in participation, and what this means for the next phase of growth.

• Global but uneven distribution: APAC leads as the fastest-growing region with a 69% year-over-year rise in onchain activity, followed by Latin America and Sub-Saharan Africa. North America and Europe still dominate in absolute volume but with slower growth rates around 42-49%. Asia and Africa show strong acceleration, especially in small-value trades on low-fee chains reflecting organic, retail-driven growth.

• Institutional activity: Among institutions, adoption follows distinct patterns. Large trading firms are increasingly using cross-platform routing, where CEX and DEX liquidity are blended to optimize execution and hedge positions. This hybrid approach reflects how professional traders now view DEXs not as risky alternatives, but as complementary execution venues.

• Token launches: Token launches also tell an important story, most new projects now launch on DEXs first, using them for initial price discovery before seeking CEX listings as DEX token launches are permissionless and do not charge fees. However, well-capitalized projects frequently opt for centralized exchange listings for token launch and greater distribution.

• DeFi TVL: DeFi protocols’ combined TVL reached a record $157 billion in Q3 2025, with over 50% of total TVL linked to DEX protocols and liquidity pools. Ethereum leads with about 63% share of DeFi TVL.

• Active Traders: CEXs still dominate user numbers, boasting over 300 Million registered users globally. Binance alone has 290 Million users. In contrast, DEXs have around 10–15 million active monthly users, smaller in number, but more DeFi-native and sophisticated.

In summary, DEXs continue to contract the competitive differential but what truly brings them closer to CEX-grade performance is the evolution of their core trading architecture. The next leap forward is being driven by onchain order book (CLOB) models that combine decentralization with CEX and tradFi efficiency.

2. Breaking the AMM Barrier: The Era of High-Performance CLOB DEXs

Automated Market Makers (AMMs) powered the first wave of DeFi, they enabled permissionless trading but imposed significant trade-offs in efficiency, price discovery, and capital utilization. The new generation of onchain CLOB DEXs marks a structural leap forward.

Projects such as Hyperliquid show what’s possible when CEX-grade performance comes with onchain transparency. By reintroducing order book mechanics to decentralized systems, they tackle many of the pain points that kept traders tied to centralized platforms - latency, execution precision, capital efficiency and major issues especially with limit orders and derivatives.

• Latency: Median confirmation 0.07s (via HyperBFT consensus). Comparable to major CEXs, far faster than AMM DEXs (2–30s).

• Liquidity Depth: onchain CLOBs like Hyperliquid are setting new benchmarks for decentralized liquidity. The platform processes up to 200K orders per second with $6.5B in open interest, allowing deep order books that absorb large trades with minimal price impact. For top pairs like BTC and ETH, slippage stays below 0.1%, rivaling CEX-level execution which is a sharp contrast to AMMs, where slippage and impermanent loss remain persistent even following architectural improvements such as ve(3,3) mechanisms. That said, thinner pairs on Hyperliquid still face wider spreads, demonstrating that liquidity depth remains heterogeneous across markets.

• Fees: Hyperliquid’s CLOB design also reduces trading costs. Average taker fees hover around 0.035–0.045% for futures and 0.07% for Spot trading, while makers earn small rebates, levels competitive with top CEXs and far below typical AMM swap fees (0.3%–0.5%). Unlike AMMs, traders don’t bear impermanent loss or routing inefficiencies, making CLOBs more capital-efficient for active and institutional traders.

CLOB-based DEXs represent the convergence between Centralized Exchanges (CEXs) and Decentralized Exchanges (DEXs). They combine the high performance and deep liquidity of CEXs with the self-custody, transparency, and onchain execution benefits of DEXs.

3. Why are traders migrating?

Traders may migrate based on ideological alignment to use a decentralized platform instead of a custodial one. However, migration requires tangible improvements in security, cost efficiency, or operational convenience. CEXs dominated because they offered smoother user experiences and deeper liquidity.

DEXs started catching up and by 2025, DEXs have achieved near-parity and, in specific dimensions, established competitive advantages. Today’s DEXs demonstrate several structural advantages: decentralization with CEX-grade UX, radically low (or zero) fees, security and access to fair markets

1. Decentralization with UX that rivals CEXs

DEXs have two natural strengths:

• Transparency: Onchain settlement provides trade visibility, verifiable liquidity, and often proof-of-reserves, allowing users to audit protocol activity.

• Self custody: Traders retain custody of their assets, this eliminates the risk of CEX hacks. The total amount stolen in CEX hacks till mid 2025 alone exceeds $2.17 billion.

The constraint, however, remained to execution infrastructure. User interfaces lacked sophistication, liquidity was highly fragmented with substantial slippage costs, and settlement was often slow or costly. Traders accepted the risks of CEXs simply because they offered speed and usability. Infrastructure constraints began to be addressed following dYdX's launch and with Hyperliquid it became exponentially better.

2025 has witnessed an emergence of CLOB based DEXs like Lighter, Paradex, Bullet, etc coming up. These DEXs, match or in some cases surpass centralized counterparts in speed and efficiency, while retaining their decentralization benefits.

Modern enhancements include:

• UX/UI Overhaul: The interfaces of dashboards from Hyperliquid, Paradex and Lighter rival Binance’s design and responsiveness.

• Liquidity Transformation: AMMs are giving way to onchain CLOBs, delivering deep books, tight spreads, and lower slippage.

• Frictionless Onboarding: Wallet integrations, one-click trading, fiat onramps, and guided tutorials make DEXs onboarding sometimes faster than passing a CEX KYC process.

For example, Hyperliquid processed $655.5B in Q2 trading volume. Such a huge volume as a DEX is only possible because DEXs now deliver the CEX grade user experience and usability without compromising on custody or transparency.

2. Zero-Fee Models

The most significant break from CEX business models is in trading fees. CEXs have long monetized through taker/maker commissions, rebates, and affiliate revenue. DEXs are restructuring this economic framework.

Whereas Binance on perpetuals, might charge 0.020% on maker orders and 0.040% on taker orders, new entrants like Paradex and Lighter have eliminated fees entirely. Instead, they follow a @RobinhoodApp-style model eliminating direct trading fees for users while generating revenue from market makers who pay for order flow access and execution priority.

Paradex, for instance, has pioneered structured models like Retail Price Improvement (RPI) and Payment for Order Flow (PFOF), designed to improve execution quality for users while maintaining sustainable protocol revenue. These approaches replicate how Robinhood revolutionized retail equity trading, but in a fully onchain and transparent setting. (More on Paradex’s model here)

The implications are profound. Zero-fee DEXs:

• Disrupt CEX affiliate economics. Zero-fee DEXs change the traditional CEX fee model. While traders no longer pay taker or maker fees, protocols still generate revenue through PFOF, RPI, premium features and more reducing the reliance on affiliate commissions and reshaping how trading ecosystems reward participants.

• Reduce barriers to market participation. Professional or VIP traders on CEXs benefit from preferential fee structures, thanks to the rebate tiers they achieve through large volumes. However, the majority of users pay standard rates and demonstrate significant price sensitivity to fee rebates or no fee models.

• Restructure incentives. DEXs offer onchain referral schemes, governance rewards, token airdrops, and liquidity-based bonuses. These are less predictable than CEX affiliate streams but more aligned with user activity.

While trading fees may seem minor, they shape trader behavior at scale. For active users, even fractional differences compound substantially, especially in perpetual markets. The rise of zero-fee or ultra-low-fee DEXs is likely to pressure CEXs to rethink their pricing models, analogous to Robinhood's impact on equity brokerage pricing. In the long run, fee compression could shift competition away from pricing and toward liquidity depth, execution quality, and integrated financial services.

Notably, major centralized exchanges are strategically investing in decentralized infrastructure that may ultimately impact their market dominance. Binance co-founder @cz_binance, for instance, is advising @Aster_DEX, a DEX built on BNB chain while publicly stating that Binance is increasing its exposure to non-custodial and onchain businesses.

Bybit, and other large CEXs have also begun either integrating onchain trading features or investing directly in emerging DEX infrastructure. For these entities, it represents both a hedge and recognition that the next phase of exchange growth may be onchain, interoperable, and community-aligned.

3. Security, Access, and Market Fairness

DEXs are trustless and resilient, users retain control of their assets at all times, funds cannot be seized, and protocol rules are immutable. Audit trails live onchain forever, ensuring markets function even if the platform team disappears, and users are protected from arbitrary changes or discrimination.

They also offer permissionless, global access. Traders can operate 24/7 without KYC, listing approvals, or geographic restrictions. Any token can be listed instantly without fees or centralized gatekeeping, and DEXs integrate seamlessly with other DeFi protocols and smart-contract enabled applications, creating a highly composable ecosystem.

DEXs provide transparent market mechanisms. Open-source code, verifiable liquidity, and onchain order books make selective manipulation more difficult. The architecture minimizes operational errors during volatility, giving traders confidence that the market will function reliably when they need it most.

On October 9-10, 2025, the crypto market faced its largest-ever liquidation event, resulting in over $19 billion in leveraged position liquidations affecting 1.6 million traders, triggered by President Trump's announcement of a 100% tariff on Chinese imports. Centralized exchanges like Binance experienced system instability, while decentralized protocols like @aave protected $4.5 billion by using resilient oracles, and Hyperliquid maintained transparency and uptime.

This event revealed a stark contrast in trust and stability: centralized exchanges lost credibility, whereas onchain platforms maintained operational continuity. The event highlighted the operational advantages of transparent settlement mechanisms during market shocks and accelerated the shift toward decentralized trading.

These qualities reinforce why DEXs are structurally superior, complementing the performance and cost advantages delivered by modern CLOBs and AMM enhancements..

4. The Road Ahead

CEXs remain essential for fiat on/offramps, regulatory-compliant products, insurance, and trusted onboarding for new users and institutions. In contrast, DEXs excel where decentralization matters most: onchain transparency, user custody, innovative financial product launches, and privacy-preserving features.

Increasingly, traders, especially sophisticated and institutional participants, are operating across both ecosystems. They use CEX liquidity for onramping and offramping, while relying on DEXs for execution, DeFi strategies, and self-custody. This dual approach is rapidly becoming the norm rather than the exception. However, if technological advancement and adoption continue at current rates, DEXs will likely achieve market dominance.

Catalysts to Watch

Technological advancements have already made DEXs significantly more powerful. If we continue to push for deeper liquidity, greater capital efficiency, seamless fiat integration, and clearer regulatory frameworks, these developments will accelerate adoption and further narrow the gap between CEXs and DEXs.

1. Onchain CLOB scaling: Networks like Hyperliquid, or future appchains already provide deep liquidity with sub-second latency. If they achieve comparable liquidity depth for thinner pairs, the remaining execution gaps will narrow substantially, driving more sophisticated day traders on DEXs.

2. Composability and new product classes: Perpetuals will continue to differentiate DEXs; currently, options trading remains largely unviable onchain. If that materializes, it will potentially attract substantial TVL from both retail and institutional users.

3. Regulatory clarity and convergence: As CEXs like Binance face restrictions in multiple jurisdictions, regulators are beginning to explore frameworks that recognize non-custodial platforms as legitimate market venues. Singapore and Japan have begun implementing or studying compliant DeFi sandboxes and soon we might see other countries also start paying attention. Regulatory clarity of this nature could catalyze mainstream adoption as users and institutions could participate without regulatory uncertainty, enhancing ecosystem trust in the DeFi ecosystem.

4. Privacy Onchain with Dark Pools: Onchain dark pools provide confidential execution venues within decentralized exchanges, enabling large block trades without public orderbook disclosure. This privacy helps prevent front-running and liquidation hunting, attracting institutional participants seeking efficient execution without adversarial front-running or hunting. By increasing confidentiality and reducing manipulation risks, dark pools will accelerate DEX adoption among institutional participants.

5. Brand and fiat innovation: Emerging “decentralized fintech” startups such as PayPal and Stripe may combine bank-grade support with seamless fiat gateways, further eroding the CEX advantage.

Conclusion: The Inevitable Rise of DEXs

DEX market share expansion is quantitatively evident. In Q4 2024, DEXs captured 10.5% of spot trading and 4.9% of perpetuals. By Q3 2025, these numbers surged to 19% and 13.3%, respectively. This represents an average quarterly growth of roughly 25–40%, depending on the segment. Extrapolating current growth trajectories yields the following projections:

• DEX Spot Volume can reach >50% market share by mid-2027

• DEX Perp Volume can reach >50% market share by early 2027

Even under conservative growth scenarios, DEXs surpass the 50% threshold in two years, cementing their trajectory from niche alternatives to dominant platforms.

Governments are increasingly engaging with DeFi frameworks. Singapore and Japan are already testing DeFi sandboxes, and other regulatory bodies like the SEC and MiCA are expected to implement comparable frameworks. This will potentially legitimize non-custodial platforms, allowing more people and institutions to participate without legal fears.

Black swan events, like the recent one on October 9-10, have shown that DEXs are structurally superior to CEXs in how they transparently handle liquidations. While CEXs struggled, Hyperliquid remained fully operational. DEXs are not only better ideologically but also operationally.

Looking ahead, we will soon see onchain dark pools and even more composable liquidity layers that will attract sophisticated traders and institutions. CLOB-based DEXs already approach CEX-grade execution and the integration of privacy-preserving features would create a value proposition difficult for centralized platforms to match.

The competitive trajectory suggests that 2025 represents an inflection point: DEXs have transitioned from experimental alternatives to credible competitors positioned to capture majority market share within a two-to-three-year horizon.

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The content provided in this article is for educational and informational purposes only and should not be construed as financial, investment, or trading advice. Digital assets are highly volatile and involve substantial risk. Past performance is not indicative of future results. Always conduct your own research and consult with qualified financial advisors before making any investment decisions. A1 Research is not responsible for any losses incurred based on the information provided in this article. This campaign contains sponsored content. A1 Research and its affiliates may hold positions in the projects and protocols mentioned in this article.