The cryptocurrency market is evolving at an unprecedented pace, with diverse participants—retail traders, high-net-worth individuals, institutions, and exchanges—each playing a distinct role in shaping market dynamics. Understanding these behaviors is no longer optional; it’s essential for anyone involved in digital asset ecosystems.
A comprehensive report by Chainalysis offers deep data-driven insights into user behavior across centralized exchanges (CEXs), revealing how different user segments contribute value through inflows, activity levels, and retention. By analyzing wallet age, asset holdings, fund flows, and churn rates, the study provides a granular view of who drives exchange revenue and why.
Whether you're an exchange operator aiming to refine your user acquisition strategy or an investor seeking to understand market structure, this analysis delivers actionable intelligence. Let’s explore the key findings, real-world implications, and strategic takeaways.
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Market Overview: Growth Amid Challenges
Despite a 50% rise in Bitcoin’s price in 2023, centralized exchanges faced headwinds. The number of active CEX platforms dropped from 750 to 640 since early 2022, pressured by increasing competition from decentralized exchanges (DEXs) and declining trading volumes.
Yet, on-chain data tells a different story: user adoption continues to grow. Over the past five years, the number of active non-custodial wallets across major blockchains has surged from around 50 million in 2018 to over 300 million today. This divergence—growing wallet adoption against shrinking exchange dominance—signals a critical shift.
Exchanges can no longer rely on broad user acquisition. Instead, they must focus on targeting high-value users and improving retention strategies to remain competitive.
User Segmentation: Six Key Groups
Chainalysis classifies users into six categories based on wallet age and asset balance:
- Early Retail: Long-standing small-balance wallets
- Early Professional: Long-standing large-balance wallets (often "whales")
- Early Institution: Long-standing institutional-grade holdings
- Late Retail: Recently created small-balance wallets
- Late Professional: Recently created large-balance wallets
- Late Institution: Recently created institutional accounts
This segmentation reveals a crucial insight: while retail addresses dominate in quantity—numbering in the hundreds of millions—their combined assets are dwarfed by institutional holdings.
Moreover, current weekly activity is led by late retail users, indicating a wave of new entrants. However, late professional wallets show strong engagement too, reflecting growing participation from well-capitalized investors entering the space in recent years.
Fund Flows to Centralized Exchanges
Transaction volume to CEXs serves as a proxy for potential trading fee generation. Since direct order book data isn’t available on-chain, Chainalysis uses incoming transfer value as a reasonable estimate of economic contribution.
Since Q1 2021, the largest contributors to inflows have been:
- Late Institution: 23.6% of total value sent to CEXs
- Late Retail: 19.0%
- Late Professional: 18.8%
While late retail leads in user count, late institution and late professional groups drive disproportionate value. In contrast, early institution and late retail wallets contribute less relative to their potential—due to lower capital size (in the case of late retail) or minimal share of active wallets (early institution).
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Case Study: User Behavior on FTX Before Collapse
FTX once ranked among the most popular exchanges before its 2022 collapse. Analyzing its user base reveals striking patterns about value concentration versus user count.
User Composition vs. Value Contribution
- Late Retail Wallets: Made up 75.8% of weekly users but contributed only 7.6% of total inflow value
- Late Professional Wallets: Represented 17.6% of users and sent 21.4% of value—proportionally aligned
- Late Institution Wallets: Just 0.1% of users yet accounted for 30.0% of all funds流入
This disparity highlights a fundamental truth: a tiny fraction of ultra-high-net-worth users generate outsized revenue for exchanges.
Timeline of Institutional Adoption
From January to April 2021, late institution wallets contributed minimally to FTX inflows. Their dominance began rising in late 2021, coinciding with broader institutional interest during the bull run. This shift may reflect both market-wide trends and targeted outreach by FTX to attract high-value clients.
Retention and Lifetime Value Metrics
User churn rate is another critical metric for evaluating long-term profitability. The report finds:
- Early Retail Wallets: Highest churn at 15.7% per week
- Late Retail & Late Professional: Lowest churn at 0.4% and 0.6%, respectively
To estimate lifetime value (LTV), Chainalysis applies the formula:
Expected Lifetime Inflow = Weekly Average Inflow / Weekly Churn Rate
Using this model:
- High inflow + low churn = high LTV → characteristic of institutional and late professional users
- High inflow + high churn = lower-than-expected LTV → typical of early retail
Thus, even though early retail users send significant weekly volumes, their rapid attrition limits long-term value.
Strategic Implications for Exchanges
These insights offer concrete guidance for exchange operators:
- Precision Targeting: Use behavioral segmentation to tailor incentives. For example, offer higher referral bonuses to wallets identified as late professional or institutional.
- Retention Focus: Prioritize reducing churn among high-inflow groups like early retail—even small improvements yield outsized returns.
- Product Development: Design features that appeal to low-churn, high-value users (e.g., OTC desks, API access, staking rewards).
As seen with FTX’s attempted airdrop strategy, identifying high-LTV wallets allows for more efficient marketing spend and better ROI on user acquisition.
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Frequently Asked Questions (FAQ)
Q: What defines a "late institution" wallet?
A: A "late institution" refers to a wallet created recently (post-2020) with large asset balances typical of institutional investors, such as hedge funds or asset managers entering crypto markets during recent bull cycles.
Q: Why are retail users' contributions so low despite high numbers?
A: While retail users dominate in volume, their individual transaction sizes are small and they exhibit high churn—meaning they deposit less frequently and leave faster, reducing their overall economic impact.
Q: Can on-chain data accurately reflect trading fees generated?
A: Not directly. However, since most deposits to CEXs precede trades (rather than long-term holding), total inflow value serves as a reliable proxy for potential fee generation.
Q: How can exchanges identify institutional wallets?
A: Through a combination of wallet clustering, transaction patterns, KYC-linked addresses (where available), and integration with blockchain analytics tools that classify behavior based on historical activity.
Q: Does high institutional inflow mean greater stability for exchanges?
A: Generally yes—due to lower churn and larger average transactions, institutional users provide more predictable revenue streams compared to volatile retail flows.
Q: What lessons can new exchanges learn from FTX's user base?
A: Focus on acquiring fewer but higher-value users rather than chasing mass adoption. Invest in tools that identify and retain whales and institutions who drive long-term profitability.
Conclusion
The Chainalysis report underscores a pivotal reality: not all users are created equal. While retail traders form the base of the user pyramid, institutions and professional traders deliver the majority of economic value to centralized exchanges through sustained inflows and low attrition.
For platforms aiming to thrive amid rising competition and shifting user behaviors, leveraging granular on-chain analytics to segment, target, and retain high-LTV users isn't just strategic—it's essential for survival.
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