Cryptocurrency markets are becoming increasingly complex. Understanding the distinct behaviors of different user groups—retail traders, whales, and institutions—is crucial for both exchange operators and investors.
A recent report by Chainalysis offers detailed data analysis and unique observations on how these groups interact with exchanges, shaping the broader crypto ecosystem. The study examines wallet types, activity levels, total value inflows and outflows, and user churn rates, using FTX as a case study to break down how various user segments contributed to its operations.
These insights help clarify how different users create value for exchanges, their activity patterns, and their likelihood of staying active. For exchange operators, this data can inform user acquisition and retention strategies. For investors, it provides a clearer picture of market dynamics.
Key Findings at a Glance
- User Segmentation: Based on wallet age and asset holdings, users are categorized into six groups: early retail, early professional, early institutional, late retail, late professional, and late institutional. While retail users have more addresses in total, their combined assets are less than those of institutional players.
- CEX Inflows: Late institutional wallets contributed the highest share of total value sent to centralized exchanges (CEXs) at 23.6%, followed by late professional (18.8%) and early retail wallets (19.0%).
- FTX Case Study: Although retail users dominated FTX in terms of numbers, their average weekly inflow was only around $700. In contrast, institutional users, though fewer, brought in an average of $2 million weekly.
- Churn Rates: Late professional and late retail wallets showed the lowest churn rates on CEXs (below 1%), while early retail users had a churn rate as high as 15%.
Market Overview: Growth Amid Challenges
In 2023, the cryptocurrency market began to thaw, with Bitcoin’s price rising over 50%. However, exchanges faced headwinds: the number of active centralized exchanges dropped from 750 in early 2022 to 640. Competition from decentralized exchanges (DEXs) also intensified, leading to declining trading volumes on CEXs.
Despite these challenges, the number of cryptocurrency users continued to grow. Data from Chainalysis-supported blockchains over the past five years shows a clear upward trend in active non-custodial wallets.
This growth, set against a backdrop of exchange struggles, underscores the need for platforms to better segment their users and focus on attracting and retaining those who bring the most value.
User Segmentation: Who’s Who in Crypto
The report classifies users into six categories based on wallet age and asset size:
- Early retail
- Early professional
- Early institutional
- Late retail
- Late professional
- Late institutional
Retail users are typical small-scale traders, while professional users can be thought of as whales. Unsurprisingly, retail addresses are numerous but hold fewer total assets than institutional wallets.
Most weekly active wallets today are late retail users—those with recently created wallets and low balances. The number of late professional wallets also exceeds that of early retail, indicating increased participation from larger investors in recent years.
Value Flow: How Users Interact with Exchanges
Centralized exchanges primarily profit from trading fees. Although the report lacks order book data to calculate fee contributions per user group, it uses on-chain inflow data as a proxy.
Since cryptocurrencies are often sent to exchanges for trading rather than holding, this assumption is reasonable. Since early 2021, late institutional wallets have contributed the largest share of value sent to CEXs (23.6%). Late professional and early retail wallets follow closely.
Late retail and early institutional wallets lagged, contributing 11.4% and 11.9%, respectively. The reasons differ: late retail wallets have less capital, while early institutional wallets represent the smallest share of active wallets.
Case Study: FTX’s User Base and Value Contribution
Before its collapse in November 2022, FTX was one of the most popular exchanges. Its user composition, however, differed from the overall market.
Late retail wallets made up the bulk of FTX’s users, with late professional wallets as the second-largest group. This suggests that retail users were the primary source of incoming numbers—but not necessarily value.
Late institutional and early institutional users, though small in number, dominated value inflows:
- Late institutional wallets contributed 30.0% of total inflows despite representing only 0.1% of weekly users.
- Late professional wallets accounted for 21.4% of inflows, aligning with their 17.6% share of users.
- Late retail users, though 75.8% of the user base, contributed only 7.6% of inflows.
Early on, late institutional inflows were minimal but grew significantly by late 2021, possibly due to increased institutional adoption or targeted efforts by FTX to attract high-value users.
When ranking user groups by value contribution, institutions clearly lead, with significantly higher total inflows than retail users.
Churn Rates and Lifetime Value
Churn rate is another key metric. Early retail wallets had the highest churn rate at 15.7% weekly, while late professional and late retail wallets had the lowest (0.6% and 0.4%).
To estimate a wallet’s lifetime value to an exchange, the report uses the formula:
Expected lifetime inflow = Weekly average inflow / Weekly churn rate.
By this measure, institutional users offer far greater expected value due to lower churn and consistent weekly inflows.
Strategic Implications for Exchanges
These insights are valuable for shaping user acquisition, retention, and product development. For example, FTX used airdrops to target active wallets on other exchanges. By segmenting wallets, they could tailor rewards based on each group’s expected lifetime value.
To improve retention, FTX might focus on early retail users. Even a small reduction in their high churn rate could yield significant returns given their substantial weekly inflows. Overall, the ability to quantify user value allows for more effective marketing.
This report also sheds light on broader market dynamics: retail traders are numerous but contribute less per capita and churn more, while large players are fewer but more stable and valuable. For individual investors, understanding these patterns can inform better decision-making in a volatile market.
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Frequently Asked Questions
What are the main user types on cryptocurrency exchanges?
Users are typically segmented by wallet age and asset size: early/late retail, professional, and institutional. Retail users are numerous but hold less total value, while institutional users are fewer but contribute more volume.
Why do institutional users matter more to exchanges?
They bring larger inflows, have lower churn rates, and generate more fee revenue. Their sustained activity makes them crucial for exchange profitability and stability.
How can exchanges reduce user churn?
By targeting high-churn segments like early retail users with improved onboarding, education, and incentives. Even small retention improvements can significantly boost lifetime value.
What was unique about FTX’s user base?
FTX had a high proportion of retail users but relied heavily on institutional inflows for value. This highlights the importance of balancing user acquisition with value optimization.
How is lifetime value calculated for exchange users?
It’s estimated by dividing the average weekly inflow by the weekly churn rate. This helps exchanges identify which user segments are most valuable over time.
Can decentralized exchanges use similar analysis?
Yes, though data may be harder to obtain. Segmenting users by on-chain behavior can help DEXs tailor incentives and improve liquidity.