Crypto

Crypto wake-up call: Researcher explains exodus of ETH from exchanges

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Analysis of the blockchain by a researcher from Nansen found outflows of Ether (ETH) and stablecoins from centralized exchanges following the collapse of FTX.

Nansen research analyst Sandra Leow posted a Twitter thread unpacking the current state of decentralized finance (DeFi), with a particular focus on the movement of ETH and stablecoins from exchanges.

As it stands, the Ethereum 2.0 deposit contract contains over 15 million ETH while some 4 million wrapped ETH is held in the WETH deposit contract. Infrastructure development and investment firm Web3 Jump Trading holds over 2 million ETH tokens and is the third largest ETH holder in the ecosystem.

Binance, Kraken, Bitfinex, and Gemini wallets feature in the largest list of ETH balances, while the Arbitrum Layer 2 Deployment Bridge also holds a significant amount of Ether.

As Leow explained in correspondence with Cointelegraph, the percentage increase in ETH held in smart contracts can be seen as an indicator of the flow of ETH into various DeFi products. This includes decentralized exchanges, staking contracts, and custodial services.

The recent collapse of FTX may also have raised fears among users holding assets with third-party custodians, such as centralized exchanges. Leow underscored the reality that the safety of funds held on exchanges may not be guaranteed:

“There’s amplification for the quote, ‘Not your keys, not your coins,’ and that’s especially important at times like these.”

According to Nansen’s Exchange Flow Dashboard, Jump Trading stands out as an entity with large withdrawal volumes from exchanges relative to their deposits. Leow presented a number of possible reasons for Jump Trading’s token movements, noting the firm’s exposure to Liquidity Hub Serum (SRM) tokens:

“Due to their exposure to FTX fallout, they had to offload some tokens from exchanges in need of liquidity. Over the past 7 days, we have seen Jump Trading withdraw ETH, BUSD, USDC, USDT, SNX, HFT, CHZ, CVX, and various other tokens from multiple exchanges.

A substantial amount of ETH has also exited from a number of major exchanges over the past seven days. $829 million of ETH left Gemini, while Upbit saw $797 million of ETH transferred from its account. $597 million of ETH exited Coinbase while Bitfinex also saw around $542 million of ETH withdrawn from its platform.

Last week, a significant amount of stablecoins were also pulled from exchanges. $294 million worth of Stabelcoins exited Gemini, while Bitfinex saw $173 million exit its platform. KuCoin and Coinbase followed, with $138 million and $108 million of stablecoins withdrawn from the two exchanges, respectively.

Leow also opened up about the movement of stablecoins, telling Cointelegraph that outflows generally indicate that users are on the sidelines and capital isn’t flowing in the cryptocurrency space:

“Perhaps the market contagion and prolonged bear market is reducing traders’ appetite to actively invest and engage in the space.”

Nansen played his part in delivering key ideas in major ecosystem events in 2022. The blockchain analytics firm dug into on-chain data to reenact the collapse of Terra in May 2022.

He then followed suit with a dive into the collapse of FTX, with evidence suggesting collusion between the exchange and crypto trading firm Alameda Research. Both companies were created and controlled by Sam Bankman-Fried.