Coinstore Team Schools DPAD’s YCombinator Projects on Decentralized vs Centralized Crypto Exchanges
This is yet another very important writeup from a series of DPAD’s YCombinator sessions where 11 projects are currently in incubation. The presentation was delivered by Shaz Qamar- one of the top Business Development Executives at Coinstore. According to Shaz, cryptocurrency exchanges play a critical role in the crypto space, enabling traders to buy, sell, and trade digital assets. There are two main types of crypto exchanges: centralized crypto exchanges (CEX) and decentralized crypto exchanges (DEX).
Centralized Crypto Exchanges (CEX)
CEXs are operated by a central authority or company that manages the exchange and facilitates trading activities. They offer a user-friendly interface and support a wide range of trading pairs, including fiat-to-crypto and crypto-to-crypto pairs. They provide advanced trading features such as margin trading, limit orders, and stop-loss orders. Examples of CEXs include Binance, Coinbase, Kraken, and Coinstore.
Pros of Centralized Exchanges
Fiat support: CEXs offer traders ways to purchase crypto with local fiat currencies.
High liquidity and volume: CEXs have more liquid markets and offer institutions an attractive setting for their trades, thanks to market makers.
Supports various assets and instruments: CEXs support hundreds of native cryptocurrencies, making it easy to trade cross currencies.
User experience and support: These exchanges offer customer support including intuitive interfaces to help traders navigate the platform.
Cons of Centralized Exchanges
Requires trust: When depositing into CEXs, users give up custody of their cryptocurrencies, removing the ability of traders to maintain ultimate control of their assets.
Single point of failure: Like all centralized platforms, CEXs are an attractive target for hackers. They are prone to hacking because everything is controlled from a central source.
Lack of transparency: Money flowing through CEXs isn’t fully visible to the public.
Decentralized Crypto Exchanges (DEX)
DEXs operate on a decentralized blockchain network, allowing users to trade cryptocurrencies directly with each other without the need for a central authority or intermediary to oversee the transaction. Transactions are processed through a network of nodes and smart contracts. Examples of DEXs include Uniswap, PanCakeSwap, and Discovery.
Pros of Decentralized Exchanges
Non-custodial: Users are always in complete control of their funds on DEXs.
Permissionless: Anyone with an internet connection can access a DEX.
Transparency: When trading on a DEX, traders can audit all transactions.
Censorship resistance: As decentralized protocols, no party can censor transactions.
Support for wider cryptocurrencies: DEXs can support a wider range of cryptocurrencies.
Cons of Decentralized Exchanges
Impermanent loss: While the idea is for tokens in pools to eventually trade in tandem with overall market price, more often than not, impermanent loss can become permanent loss.
User experience: The processes of using a decentralized exchange can be less intuitive to those who are used to centralized exchanges.
Hacks and bugs: DEXs might be more secure than CEXs, but they are only as secure as their code.
Checklist for Listing on CEX
Listing on a CEX can provide a significant boost to a cryptocurrency’s liquidity and exposure.
The steps involved in listing a cryptocurrency on a CEX are highlighted in essence:
Discussion of services
Proposal shared with the exchange
Due diligence done by the exchange’s audit team
Contract signing & payment confirmation from Finance team
Collection of project details
Configuration of exchange wallet
Caveat: The overall process takes 5–7 working data for listing and 15 days for IEO.
Both centralized and decentralized exchanges have their pros and cons, and the choice of which to use depends on individual preferences and trading goals. However, it’s important to note that both types of exchanges play an important role in the crypto ecosystem and contribute to its growth and development.