Despite the ongoing and seemingly never-ending war and regulatory issues, cryptocurrency adoption has been growing steadily across Eastern Europe and is said to be driven by institutions and DeFi activity. This, according to report from Chainalysis.
As the world’s fourth largest crypto market, Eastern Europe has reportedly received “$499.14 billion in value on-chain between July 2023 and June 2024, or 11% of the total share of crypto received globally.”
Chainalysis further noted that centralized exchanges (CEXes) received the most crypto in the region at “nearly $324 billion, and DeFi activity grew significantly in the past year with $165.46 billion in crypto, a third of the region’s inflows.”
Chainalysis also mentioned that in this year’s global crypto adoption index, regional players Ukraine and Russia have reportedly “ranked 6th and 7th, respectively, with Russia advancing six places from last year’s ranking.”
That both countries’ crypto markets are thriving is considered to be remarkable given the “ongoing war and intensifying international sanctions regime against Russia, which led Eastern Europe with $182.44 billion in crypto inflows.”
Ukraine followed, reportedly “receiving $106.1 billion in crypto.’
The research report from Chainalysis added that in Ukraine, institutional and professional transfers drove “a large portion of its crypto market growth, a noteworthy development given the country’s evolving regulatory situation.”
To gain regional perspective, Chainalysis caught up with WhiteBIT, a crypto exchange with roots in Ukraine and headquartered in Lithuania, “with a total of eight offices globally.”
Despite the war, WhiteBIT maintains a “strong” presence in the region, along with other CEXes, “although some of them may have relocated operations to other Eastern European countries due to security concerns.”
A review of order book data — a list of buy and sell orders for an asset or security — shows that Bitcoin (BTC) purchases “using the Ukrainian hryvnia (UAH) have grown in the past year, totaling $882.64 million.”
This follows a peak in UAH inflation “at 26.6% in December 2022, and a steady decline in inflation in Q1 2023. Because consumer purchasing behavior typically lags behind economic trends, Ukrainians may have been pursuing BTC as an alternative store of value to the UAH.”
Russia continues to receive “large volumes of cryptocurrency from domestic and foreign sources.”
Last year, Chainalysis had reported a growth in homegrown “services in Russia, a trend that has remained steady this year.”
According to the update, the index of growth for local services in Russia examines the average “share of web traffic — defined as a greater than a 50% share — to Russia-based services in the past two years. While visits to CEX websites have remained relatively flat, those to Russian-language no KYC exchange websites have risen, peaked mid-last year, and are now holding steady.”
This could be in part due to the “expansive sanctions against major Russian financial institutions, driving Russian nationals to more broadly use these types of services, where they can on- and off-ramp fiat from their sanctioned Russian banks to crypto.”
That reality aside, blockchain firm Chainalysis has looked at a “potential positive growth indicator for Eastern Europe: a substantial increase in DeFi activity.”
In the past year, DeFi activity accounted for “over 33% of total crypto received for Eastern Europe.”
In Eastern Europe, decentralized exchanges (DEXes) saw by far “the greatest increase in crypto inflows — particularly in Ukraine, Russia, Poland, and Belarus.”
Regionwide, DEXes have reportedly “received $148.68 billion in crypto. Crypto sent to DEXes in Ukraine and Russia grew by 160.23% and 173.88%, respectively, with Ukrainian DEXes receiving $34.9 billion and Russian DEXes, $58.4 billion.”
The report from Chainlysis added that several countries, such “as Moldova, Hungary, and Czechia, also saw a rise in DeFi lending services, which received $11.29 billion in crypto.
While countries like Hungary and Moldova saw explosive growth in bridges and lending, “given their relatively small markets, crypto inflows to those categories only accounted for a fractional share of the region’s total DeFi volume.”
For example, Hungary’s nearly “600% increase in crypto sent through bridges amounted to $151 million in crypto.”
Chainalysis added in its update that while not an “insignificant sum, comparing Hungary’s bridge inflows to Ukraine’s — $897 million— puts the figure into regional context. NFT growth also surged in some countries, but accounted for a mere $6.9 million of Eastern Europe’s total DeFi inflows.”
Chainalysis also mentioned in its latest research report that token smart contracts (i.e., those that leverage ERC-20 tokens, as well as popular stablecoins, such as USDT and USDC) were “not included in the above chart because all Eastern European countries experienced a notable decline in this category, mirroring a regional decrease in stablecoin volumes.”
Chainalysis also pointed out that most other regions saw “sustained growth in stablecoins, and WhiteBIT believes that regulatory uncertainty and geopolitical tensions could be contributing to Eastern Europe’s move away from stablecoins.”
The research study by Chainalysis added that in Ukraine and other Eastern European countries there is “no need for that, as most of the population has bank accounts and local currencies are more or less stable.”
Of course, Chainalysis explained in its report that “because of the war and generally over the years Ukrainian hryvnia lost its value significantly, but people tend to exchange their savings in hryvnia to dollars. Before December 2023 there were limits on buying foreign currency in Ukraine, but in December 2023 they were levied.”
The Chainalysis report further noted that DeFi transaction sizes for the past year reveal two key trends, particularly among “regional leaders, Ukraine and Russia.”
The Chainalysis research report also revealed that Ukraine saw a “361.49% increase in large institutional transactions (i.e., those greater than $10M), which drove most of its DeFi growth. Similarly, Russia, Belarus, Poland, and Slovakia saw the greatest DeFi growth with large institutional transfers.”
