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Cryptocurrency exchange SaaS solutions can be centralized, decentralized and hybrid. Centralized exchanges are the most attended platforms: 10 billion USD daily trading volume on Binance. Decentralized and hybrid exchanges are gaining popularity: 800 million USD daily trading volume on dYdX. Today, in detail about centralized and decentralized exchanges, their strengths and weaknesses. Centralized Exchange A

Cryptocurrency exchange SaaS solutions can be centralized, decentralized and hybrid. Centralized exchanges are the most attended platforms: 10 billion USD daily trading volume on Binance. Decentralized and hybrid exchanges are gaining popularity: 800 million USD daily trading volume on dYdX. Today, in detail about centralized and decentralized exchanges, their strengths and weaknesses.

A centralized cryptocurrency exchange (CEX) allows exchanging, storing, buying, sending virtual assets.n CEXs have watchdogs that:

This scenario resembles traditional banks: a client opens an account, transacts money, stores it. The bank owns the money, not the client. The same is true for CEXs.

Examples of CEXs: Binance, Coinbase, Kraken, KuCoin, Bitfinex, Gemini, Coincheck, Bitstamp, Bybit.

CEXs are popular among investors because these platforms guarantee stability and security. Beginners also prefer centralized crypto exchanges as CEXs provide convenient interface and wide trading functionality. Other advantages of CEXs:

Centralized exchanges implement KYC and AML algorithms. KYC checks verify each client: their identity, country of residence. AML verification helps to detect fraudulent operations and eliminate them. These strategies protect users from risky transactions.

There are several liquidity providers that produce a high turnover on CEXs. Orders can be executed instantly. Good liquidity reduces slippage fees and high spreads. Plus, big liquidity retrench volatility and rate counterfeit.

CEXs are secured from fraudful projects. If an altcoin ends up on a centralized exchange, like Binance or Kraken, it means the coin passed strict checks. Plus, listing cost a considerable sum, starting from 5% of ICO.

Multi-stage protection is not always enough to secure crypto assets from hackers. Centralized cryptocurrency exchanges insure users. For that, clients pay a fee. Yet, these measures guarantee the safety of assets.

Centralized exchanges are popular and offer professional tools for trading. However, CEXs have several disadvantages:

KYC checks protect accounts and funds. That said, it is deanonymization too, which diverges from the anonymous nature of cryptocurrencies. Besides, there is a risk of personal data leaks.

Assets stored on a CEXs wallet belong to the platform. Clients can withdraw crypto to personal wallets. But the exchange may go bankrupt or get hacked before users transfer the money.

Hackers often break into CEXs hot wallets. Hackers can sneak into decentralized exchange wallets as well. With CEXs, however, clients are helpless. If a CEX is hacked, it is a problem of the CEX. Users lose their crypto anyway.

A decentralized cryptocurrency exchange (DEX) allows p2p trading. Traders send crypto directly to each other, without an intermediary. Most DEXs operate on the Ethereum blockchain because it has smart contracts, lines of code that enable execution if conditions are met. Smart contracts equip DEXs with algorithms that establish the price of crypto assets.

To assist transactions, investors place assets in liquidity pools. Liquidity pools provide liquidity to a DEX. While liquidity pools investors collect interests.

Examples of DEXs: Uniswap, Covo, SushiSwap, Pancake Swap, Curve Finance, dYdX.

Decentralized exchanges usually have a developer who works on smart contracts and elaborates protocols. Nevertheless, DEXs are more secure platforms since there is no central governor that can be tampered with. Other advantages of DEXs:

DEXs do not have order books that display information about placed orders. Clients transact cryptocurrencies directly. There is no margin trading, limit and market orders.

Traders can anonymously trade virtual assets. DEXs do not have KYC and AML checks. Besides, users do not need to provide personal data: passport ID, photo, country of residence.

Only clients can access their assets. Decentralized exchanges do not store users money. So, neither developers nor authorities can freeze funds or impose restrictions.

Transactions are based on blockchain and are triggered by smart contracts. Authorized entities cannot intrude on an operation. Nor can scammers.

Decentralized cryptocurrency exchanges rank below CEXs in the volume of trading. Total decentralization brings disadvantages:

DEXs allow users to trade tokens that belong to one blockchain network. Some sites introduce cross-chain bridges, which complicates an exchange process.

Transaction fees are higher on DEXs than on CEXs. Moreover, since transactions are carried out directly in the blockchain, a user pays the network commission. In protocols, like Ethereum or Bitcoin, the commission can reach dozens of dollars.

P2P trading can hardly be called a full-fledged exchange. There are no order books, no orders: sell stop, buy stop, sell limit, buy limit, etc. Such inventory deficiency can complicate trading and lead to losses.

The choice relies on a clients objective. Active traders will benefit more from a centralized exchange. They can save money on commissions, employ a wide trading inventory, such as margin trading, cryptocurrency futures, and complete deals quickly.

For long-term investors or traders with few trading transactions, DEXs work best. Assets remain in personal wallets without third parties accessing them. Venture investors can also profit from DEXs because they can reach emerging crypto assets right after the launch.

If anonymity plays a role, then DEXs again. This opportunity though will be closed: regulators are working on a legislative framework for decentralized exchanges to know their client.

Original post:

Centralized And Decentralized Cryptocurrency Exchanges - Blockchain Magazine