Last Update Dec 03, 2022
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What is a cryptocurrency exchange?
Cryptocurrency exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currency like US dollars or Euro. For those that want to trade professionally and have access to fancy trading tools, you will likely need to use an exchange that requires you to verify your ID and open an account. If you just want to make the occasional, straightforward trade, there are also platforms that you can use that do not require an account.
Generally there are three types of Cryptocurrency Exchange
1. Traditional Exchange
Traditional Cryptocurrency Exchange where buyers and sellers trade based on
the current market price of cryptocurrencies (with the exchange playing the
middle-man). These type of trading platforms generally take a fee from each
transaction. Some of these exchange types also allow users to convert fiat
currency like the U.S. dollar into cryptocurrency like Bitcoin at the market
price.
2. Direct Cryptocurrency Exchange (Direct Trading)
Type of Direct Cryptocurrency Exchange offer offer direct person to person
trading where individuals from different countries can exchange currency.
Direct trading exchanges don’t have a fixed market price, instead, each seller
sets their own exchange rate.
That is a Cryptocurrency Exchange site that anyone can visit to buy
cryptocurrencies at a price set by the broker. (generally at the market price
plus a small premium).
Decentralized Crypto Exchange (DEX) vs Centralized Exchange (CEX)
What is Decentralized Crypto Exchange (DEX)?
Decentralized exchange (DEX) is a crypto exchange peer-to-peer (P2P) that can directly connect crypto buyers and sellers. The DEX platform is non-custodial, where users store crypto in (privacy wallets) and keep their private keys safe while transacting. But not all DEXs implement the same platform, because there are still many DEXs that maintain old features such as Order Books and use liquidity protocols.
3 Types of DEX
Based on the implementation of the features and ways of working that we encounter in the crypto market, there are 3 types of DEX as follows:
1. Order Book
DEX Order Book is the first generation of dex, almost the same as conventional CEX, this order book compiles a record of all open buy-sell orders for certain assets. The difference between these prices determines the depth of the order book and the prevailing market price. On DEXs with order books, this information is often stored on-chain during transactions, while your funds are still stored off-chain in your wallet.
2. Swaps
The second generation of DEXs do not use Order Books but use a liquidity pool protocol to determine crypto prices. On P2P networks, the transaction process will execute the user's wallet instantly, or better known as Swap.
3. Decentralized Exchange Aggregator
Usually decentralized exchanges use a number of different protocols and ways of working. While these dynamics result in greater security and autonomy, they result in non-fluent liquidity across platforms.
This weak level of liquidity can be a barrier for institutional investors or independent traders looking to purchase large volumes of certain crypto assets. To address this, DEX aggregators have developed tools to deepen asset liquidity pools across decentralized exchanges.
Top 10 Decentralized Exchanges[
List of top 10 DEXs based on liquidity, traffic and trading volume as follows:
1. Uniswap (v3)
2. dYdX
3. Curve Finance
4. Kine Protocol
5. PancakeSwap (v2)
6. DODO (Ethereum)
7. Sun.io
8. ApolloX DEX
9. Uniswap (V2)
10 Perpetual Protocols
What is CEX (Centralized Exchange)?
CEX or Centralized Exchange is a Centralized Exchange, with a physical address and corporate structure. Like any other CeFi business, CEX must comply with all applicable laws, rules, remittance licenses and regulations in each country, state or territory in which they operate.
As the name implies "centralized" which means there is a central organization company that acts as a third person to store user assets, set exchange rules, and charge exchange fees.
Advantages
Higher trading volume compared to DEX
High liquidity
Fiat-cryptocurrency trading
High functionality
Disadvantages
More vulnerable to hacks compared to DEX
Under government regulations (can be closed)
Centrally managed
Possible scam from a third party
Top 10 Centralized Exchanges
List of top 10 centralized exchanges, ranked by trading volume, liquidity, traffic.
1. Binance
2. Coinbase Exchange
3. Krakens
4. KuCoin
5. Binance.US
6. Bitfinex
7. Gemini
8. Coincheck
9. Bitstamp
10. Bybit