Cryptocurrency exchanges. Types and comparison

By akohad Mar27,2023


Crypto exchanges types and comparison
Cryptocurrency exchanges. Types and comparison
  • Centralized. One of the most common types of crypto exchanges, which resembles in a way a traditional stock exchange (the most well-known examples of them are Binance, Bitfinex and the like). All the decisions are taken by a central authority (or authorities), all operations take place at the same server and the main aim of such an exchange is to connect matching offers, placed by sellers and buyers. Such platforms use centralized software and provide high speed and liquidity. They are very popular and offer a large list of currencies to operate with, some of them even allow making fiat money deposits. They suggest their users interact directly with the market and put up current prices. They are convenient for owners of large amounts of assets or those who play at exchange rate movements. However, those users’ control over their funds and orders is usually next to none (as long as the exchanges are controlled by a third party).The resulting risk of being attacked is . Due to time limitations and the lack of personal control, orders can be closed without notification. Another unpleasant factor is the lack of anonymity (such exchanges require personal information, which is also at a risk of a hacker attack). Despite the server’s superior speed, withdrawal time can take more time than desired, up to several days.
  • Decentralized. Decentralized exchanges are very popular and go on raising their popularity (they include Binance DEX, IDEX, etc.). They have no central authority which rules all the process, and the decisions are not made by a third party. All these are repl;aced with smart contracts. This allows for complete anonymity and no direct risk for personal data (one needn’t share it with anyone else). Unlike centralized ones, at decentralized exchanges the users control their funds and orders, not someone else, with blockchain security providing for a high degree of safety. The risks of successful attacks are reasonably low. However, the liquidity is lower, too, and the majority of actions require extra fees, which makes operations a bit more costly. On the one hand, it helps to find unpopular trading pairs, whose trading volume is low and does not fall within the interests of ‘exchange giants’. On the other hand, the number of trading pairs is limited. The majority of DEXs exist within one blockchain, thus all the information about transactions is fixed in this blockchain and the operation speed is rather low. Although, it is the best choice for those who operate with moderate amounts of assets and are looking for the full control of those assets.
  • DEX aggregators (1inch, Paraswap, Atlas DEX) allow users to access liquidity from multiple DEXs through a single interface, making it easier to find the best prices for their trades. DEX aggregators also provide additional features such as advanced order types, price charts, and market analysis tools. DEX aggregators can help users find the best prices and liquidity for their trades, which can result in lower transaction costs and better trading outcomes Also, DEX aggregators can provide users with access to a larger pool of liquidity.
  • Instant. This very peculiar type offers a simpler way of crypto swapping. A special feature of such exchanges (including SimpleSwap or ShapeShift and the like) enables users to trade with the service directly, without dealing with other traders. These exchanges become a kind of a ‘nesting service’ for various other exchanges and provide their users with access to trading pairs included in this service. So they are not single exchanges ‘as is’. They can help with identity protection and store the assets wherever the user wishes, because they do not store any funds at their own service. They have a simple interface and, which is rather convenient, offer a range of different currencies. However, due to their ‘complex architecture’ the exchange process usually takes more time than desired. This type will suit those users, who like to deal with a wide range of different currencies or who prefer simpler, user-friendly interfaces.
  • P2P (Peer-to-peer). The most ‘personal’ type. Unlike the aforementioned types, P2P exchanges (they include such exchanges as ByBit, LuCoin, Huobi and the like) allow ‘direct’ trading with actual people. In this case no third party at all is needed. Such exchanges can replace a special Escrow service that holds an asset in question for the time until the payment is processed (as their software helps to build a direct connection with the two sides — seller and buyer — and make sure the deal is closed). The technology of these exchanges makes the process of trading simpler and the use of HTLC (Hash Timelock Contracts, which help to frame transactions within a certain time limit, when the users must manage to verify transactions) allows exchanging processes between blockchains. All the procedures are absolutely transparent, the transactions take place on a public ledger and, on the other hand, personal information is not kept on the server, which grants the participants anonymity. They offer flexible payment options and grant high security. A user does not need to have a special banking account to get access to them. And the costs, which vary related to a type of transaction and the number of parties involved in the process, are still reasonably low. However, operations take quite a long time and the volumes of trading are not large either.
  • Regulated and nonregulated. Regulated exchanges (such as get licenses from the government, follow all the legislation of the country and check every transaction for compliance with legislation and connections with shady markets and criminal structures. They demand compulsory verification, which also means stronger personal user security. Non-regulated exchanges (such as ByBit or YoBit), on the contrary, are not that demanding as far as personal data is concerned, however, personal security is lower and in case of violation of user’s rights nobody is to blame.
  • Exchanges for spot and derivative trading. Such exchanges offer possibilities to trade derivatives (a financial instrument that derives its value from the performance of an underlying entity: an asset, an index or an interest rate). These can be futures, options, swaps or leveraged tokens (a token with a fixed credit leverage with lower liquidity risks and automatic reinvesting). Among the most popular are BitMEX, FTX or Binance Futures. The other type is spot trading exchange offering no delay between the verification and the transmission of purchased assets.
SmartState: Web3 security easier than ever —
SmartState: Web3 security easier than ever

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By akohad

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