The Ether balances on centralized exchanges have plunged to their lowest levels within two years. Glassnode, the on-chain analytics provider, reports that only 11.5% of Ether’s total supply is on centralized exchanges. This translates to about $52.4 billion worth of Ether or 13.3 million ETH.
Statistically, it means that the amount of ETH held on centralized exchanges declined by 30% within a period of 9 months. The peak was in September 2020, when centralized exchanges held about 19 million ETH.
This sharp reduction of ETH on centralized exchanges indicates that long-term investors are transferring their coins to other secure storage facilities or staking them to earn high yield in decentralized exchanges.
Accordingly, the EthHub co-founder Anthony Sassano, revealed that about 10 million ETH are locked up in DeFi. Of which, 6.6 million of this is in money market protocols such as Maker, Aave, and Compound. Therefore, apart from the staked ETH, there is a large amount locked up as collateral in lending institutions and other DeFi protocols.
On the other hand, a sizable quantity of ETH is in automated market makers (AMM) where it is paired with other cryptocurrencies to provide liquidity. According to Beincrypto, 2.4 million ETH is in automated market makers, while 1.8 million ETH is kept in smart contracts and cold-storage like Gnosis Safe.
The other contributing factor to the reduction of ETH on centralized exchanges is locking of 4.4 million ETH, about 3.8% of the total supply, in the Beacon Chain deposit contract in preparation for the 1.5 phase, merging of the two ethereum chains. This merging is expected to take place in 2022.
Glassnode further contends that some notable bitcoin investors have converted much BTC to ETH in the very recent time, during May 2021. The decline of the volume of ETH on the centralized exchanges is cited as one of the reasons behind the current ETH bullish momentum. As a result, ethereum transactions increased significantly within the last four months.
As a fact, the ETH’s daily transactions hit a peak of 1.63 million within the week ending 10 May 2021. Notably, this represents about 22.5% increase over the record transactions witnessed in December 2020.
However, the declining volume of tokens on centralized exchanges is not only unique to Ether, although it seems the one hardest hit. In its report of 8 March 2021, CoinMarketCap pointed out that the volume of coins in centralized exchanges decreased by 10% in the last quarter of 2020 in response to the booming DeFi sector. The affected cryptocurrencies include UMA, MKR, COMP, UNI, and SNX, among others.
It seems that the decline in the volume on centralized exchanges may continue in the second quarter of 2021. However, only time will tell.