Results of a recent survey conducted by the Cambridge Center for Alternative Finance (CCAF), the digital currency research division of the University of Cambridge, found that regulatory headwinds did little to impede the growth of the cryptocurrency sector since 2018, with user growth touching record levels instead.

189% Growth in Users

The survey was part of the CCAF's third "Global Cryptoasset Benchmarking Study": a total of 280 crypto entities such as exchanges, wallet services, and blockchain audit providers from over 50 countries across various regions responded to questions about their user numbers.

Findings suggested that the industry has entered a growth stage despite the “notable” regulatory issues the industry faced after the ICO bubble burst in late-2017.

As of May 2020, an updated estimate of the number of crypto asset users indicated a total of up to 101 million unique users across 191 million accounts opened at service providers such as crypto exchanges. This represented a 189% increase in the number of identity-verified cryptocurrency users, up from the 35 million figure estimated in 2018.

There are limitations to the CCAF's methodology when it comes to estimating the number of unique cryptocurrency users. As such, the study does not take into account self-hosted wallets or account information of major cryptocurrency entities with no publicly available data, which suggests the study may be underestimating the actual numbers.

In its second Global Cryptoasset Benchmarking Study in 2018, the CCAF noted that overall, "there are reasons to believe that the underestimation factors outweigh the overestimation factors, which suggests that the current figure is a conservative lower-bound estimate."

The estimated number of crypto asset users and accounts in 2020. It should be noted that this figure does not include self-hosted wallets. Source: Cambridge Center for Alternative Finance

Service providers operationally headquartered in North America and Europe indicated that business and institutional clients made up only 30% of their customers, suggesting retail players still dominate the crypto market in terms of adoption, the CCAF said.

Crypto Firms Increasingly Compliant 

The growth came despite regulatory action in nations such as India and the US, where several legal proceedings were conducted against cryptocurrency startups and bad actors. However, Dr. Robert Wardrop, Director of the CCAF, pointed out changes from within the cryptocurrency industry are underway. 

“Collaborative dialogue and regulatory interventions in the industry appear to be supporting its growth by providing regulatory clarity and harmonization on the treatment of cryptoassets and related activities,” he said in the report.

Such actions, said Dr. Wardrop, included the publication of updated anti-money laundering (AML) standards by the Financial Action Task Force (FATF) in June 2019, which encouraged compliance by industry participants. 

The data supports his claim: only 13% of all surveyed businesses had not implemented Know-Your-Customer (KYC) checks as of 2020, compared to 43% in 2018.

The share of service providers that have implemented KYC checks In 2020. Source: Cambridge Center for Alternative Finance

DeFi Market a Concern

The survey noted the lack of regulation in the “unclear and untested” decentralized finance (DeFi) space, and suggested it may see more policing in the future:

As [the DeFi] space grows, the response of regulators to decentralized financial applications is a regulatory risk that needs greater study and understanding.

Other DeFi-centric concerns remained smart contract risk and the lack of financial tools to help against a sudden liquidation event in the cryptocurrency market — which could lead to unprecedented losses for users of such applications.

The study also found that “the DeFi space is still largely experimental and, in general, most DeFi applications cannot be considered meaningfully decentralised by any measure.“

“The majority of these applications are still dependent on kill switches, centralized oracles, or some other centralized support or maintenance,” the CCAF said. However, it added that the “experimental” market may see growth and act as a “game-changer” for service providers in the crypto space.

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