CCData, a leading provider of digital asset market data and analysis, has recently released the latest edition (April 2024) of its highly anticipated Exchange Benchmark report. This comprehensive study, which has become an industry standard for evaluating the risk associated with cryptocurrency exchanges, offers valuable insights into the rapidly evolving digital asset landscape.

The Exchange Benchmark, first launched in 2019, has undergone significant expansions and enhancements to its methodology, now encompassing over 100 exchanges across 8 key categories, including Security, Legal/Regulation, KYC/Transaction Risk, Team/Exchange, Data Provision, Asset Quality/Diversity, Market Quality, and Transparency. The report covers both centralized exchanges (spot and derivatives) and decentralized exchanges (DEXs), with the latter being assessed based on a separate set of metrics tailored to their unique characteristics (Security, Community, Transparency, Governance, Market Quality, User Experience, and Incentives).

One of the key highlights from the April 2024 report is the continued dominance of Coinbase, which has maintained its top ranking for the second consecutive Exchange Benchmark. Coinbase’s strong performance can be attributed to its high scores in the Legal/Regulation and Security sections, which have been revamped to ensure the highest level of risk mitigation and accountability.

Out of the 98 spot exchanges evaluated, 17 achieved Top-Tier status (BB+ or higher), with Coinbase and Bitstamp being the only exchanges to score above 80 points. Kraken and Bybit also impressed, obtaining AA rankings with scores above 75. The report cites improved Market Quality, new VASP licenses, and the increased adoption of off-exchange settlement offerings as major drivers behind these top-tier scores.

In the derivatives space, 10 out of 27 exchanges reached Top-Tier status, with OKX and Bybit leading the pack with AA grades and scores of 82.5 and 81.2, respectively. Both exchanges scored full marks in the Derivatives Market Quality category, alongside Binance, which was thresholded due to a major negative event resulting from their recent CFTC settlement.

The April 2024 report also highlighted a significant increase in due diligence questionnaire submissions, with nearly 50% of Top-Tier exchanges across spot and derivatives markets providing completed DDQs. This trend reflects a growing commitment to transparency among leading exchanges and a desire to align with the increasingly robust Exchange Benchmark methodology.

According to data from VASPnet, 68 out of 103 exchanges hold a VASP License, while 26 are registered as a Money Service Business. Notably, over 95% of Top-Tier exchanges are regulated, compared to only 60% of Lower-Tier exchanges.

The report also sheds light on the rising popularity of Off-Exchange Settlement solutions, which help mitigate counterparty risk by allowing assets to be mirrored on exchanges and traded natively while user funds are held in cold storage with regulated custodians. A total of 18 exchanges now offer access to this service, with 9 of them achieving Top-Tier status.

Despite the tougher criteria introduced in the latest benchmark, the overall performance of exchanges has improved, with the dominant grade remaining a B in the last two iterations. However, the number of AA-grade exchanges has declined by 43% since the last benchmark, reflecting the superior performance of leading exchanges.

Top-Tier centralized exchanges experienced a remarkable 775% surge in monthly volume, from ~$250bn in Oct-23 to ~$2.17tn in Apr-24, significantly outpacing the 313% increase seen among Lower-Tier exchanges. This trend highlights the market’s growing demand for robust risk mitigation and optimal market liquidity.

The report also underscores the importance of assessing counterparty risk factors, given the consistent uptrend in centralized exchange volumes, which grew by 345% since the last Benchmark, reaching an all-time high monthly volume of over $3tn by the end of March.

In terms of market quality, the report found that AA and A ranked exchanges account for 78% of the Daily Average Volumes across ranked exchanges during the collection period, while Top-Tier exchanges make up over 85% overall. This finding suggests that traders and investors prioritize volume and liquidity, especially when coupled with high regulatory compliance, robust infrastructure, and optimal market quality.

Finally, the report delves into the critical factors of spread and top-of-book liquidity, identifying Binance and OKX as the best-performing exchanges in terms of maintaining tight spreads and deep liquidity across key trading pairs.