BIS: Institutions act as the main providers of liquidity on decentralized exchanges

What’s new? Experts from the Bank for International Settlements (BIS) have said that institutional players are the main providers of liquidity on decentralized crypto exchanges (DEXs). They came to this conclusion after studying the liquidity pools of the third version of the Uniswap protocol.

BIS report

What else is known? The report highlights that institutional players on DEXs often copy the sophisticated strategies of traditional financial firms, gaining a competitive advantage over retail participants.

Uniswap v3 allows liquidity providers to place funds in specific price bands, providing a significant advantage to those with deep market knowledge. Institutional players’ share of liquidity supply on the platform ranges from 65% to 85%, the analysts write.

In addition, institutional players actively adjust their positions during periods of market volatility, earning higher profits. Retail users, on the other hand, rarely make such adjustments, which often leads to lower profitability and, in some cases, losses. Also, retail users interact with fewer pools compared to the big players.

The bank emphasizes that decentralized exchanges are positioned as inclusive platforms with equal opportunities for all market participants, but the findings show a gap between concept and reality.

Institutional dominance raises questions about whether DEXs are truly fulfilling their mission of creating a level playing field for retail participants, the report concludes.

Liquidity providers play a critical role in DEX operations. They place assets in trading pools, which allows for token exchanges, and receive trading fees. Typically, the size of the payouts is directly related to the trading volume in a particular trading pair.

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Uniswap from developer Uniswap Labs is the largest DEX in the decentralized finance ecosystem. The platform supports 26 blockchains, including Ethereum and Layer 2 (L2) networks based on it, such as Base, Arbitrum, and Optimism. Since its launch in 2018, the platform has transacted over $2 trillion in transactions.

The native token UNI ranks 29th in the overall cryptocurrency ranking with a capitalization of $5,6 billion and is trading at $9,3, having added 2,6% overnight. Weekly growth amounted to 10,1%, and since the beginning of the year, the asset has risen in price by 29,22%.

As for BIS, the organization’s experts are actively involved in the creation of crypto regulation. In July, the bank approved a risk reporting standard for crypto banks, which will come into force starting 2026, and in August, it presented a system for monitoring the security of stablecoins.