Blockchain analysis firm, Chainalysis’ new report states new withdrawals from centralized exchanges (CEXs) to personal wallets have been triggered by the FTX collapse.
Chainalysis stated that the institutional funds accounted for a larger proportion of transfers from CEXs to individual wallets. This, in general, is reportedly true for CEX-to-personal-wallet flows, and not simply during periods of peak activity or choppy market circumstances.
Institutional investment has sparked a dire need for enterprise-grade self-custody solutions in the Cryptoverse, finds Chainalysis.
Chainalysis finds an interesting analogy in its analysis. Since the high price decline following the late 2017 bull run, up until the FTX scam, CEX-personal wallet institutional transfer spikes ranged from 20% to 77% (UST collapse).
Such two latest spikes are 69% during the Celsius collapse, and 68% during the FTX collapse.
Integrated compliance tools, speedy transactions, enhanced private key management tools and processes, transaction previews, and wider support for diverse blockchains are recommended.
Sharing the said report, Chainalysis tweeted:
1/ FTX fallout prompted large new outflows from CEXes to personal wallets, a common consequence of market volatility. This time, institutional money led the charge. 🧵Here, we examine institution-led movement of funds from CEXes to personal wallets & DeFi. https://t.co/84JnTzU2I2 pic.twitter.com/Fszv1xsM5b
— Chainalysis (@chainalysis) December 22, 2022
Institutional investing transfers funds from personal wallets to CEXs probably just to keep the assets there or to move it to a different CEX. On-chain data also suggests that people are interacting with many DeFi protocols by utilizing the funds.
A considerable amount of those funds withdrawn to personal wallets are likely used for DeFi transactions shortly after. The reason is that DeFi protocols have traditionally experienced spikes in transaction volume in the same time periods as rising CEX-to-personal-wallet flows.
Chainalysis stated that institutional investors are essential players in the movement of money from the CeFi to the DeFi ecosystem. This is owing to the growing importance of institutional capital in these massive withdrawal occurrences.
Many people think that using a personal wallet carries a high-danger of engaging in illegal behavior, Chainalysis opines. This is probably because no third-party can prevent you from making a transaction. On the blockchain, personal wallet activity can be monitored, and the data reveals that they actually demonstrate limited susceptibility to illegal behavior.
Less than 1% of all funds going to personal wallets since 2020 have come from addresses linked to illegal activity. The majority of transactions involving personal wallets involve assets being transferred to or away from a centralized exchange, reports Chainalysis.
Chainalysis states, The next step to capitalizing on that interest is to improve the usability, security, and compliance components of your tools to meet institutional investors’ needs,
Chainalysis believes the cryptocurrency community should motivate personal wallet providers and DeFi protocol operators. Institutional investors are reportedly more interested in the specific self-custody products and services on offer, than just cryptocurrency.
