Why centralized crypto exchange platforms are still in business

Crypto exchange platforms help in lot in buying, selling and holding various cryptocurrencies. They form an integral part of the crypto ecosystem, always giving users a place to do anything crypto. Right now, there are major categories of exchange platforms - centralized exchanges and decentralized exchanges. If you are active in the crypto space recently, you must have been familiar with the recent growth of decentralized exchange platforms. The promise to solve all blockchain challenges is still being pushed through many defi projects. So right now, decentralized exchanges seem to be the next big thing.

But then, on cannot help wondering why centralized crypto exchange platforms continue to remain relevant till this time. No just being relevant, they still dominates the crypto market like having the largest trading volumes and users. Why do they still have more users and customers than decentralized exchange platforms. That is what I really want to look at in this presentation.

I want to start by doing a quick rundown of

Cex/Dex - Ownership and control is the main difference

Centralized exchange (Cex) and Decentralized exchanges (Dex) does majorly the same things. They allow crypto users to buy, hold or trade crypto. But they do these services differently because of how they are set up. Every crypto user needs to understand the major things separating centralized and decentalized exchanges are ownership and control. Every other thing comes from these two. Lets have a quick look at the two:

• Ownership: Centralized exchange platforms are set up by somebody. It is somebody's business. So there is a central owner who may employ and set up a business board to run the business for him. The owner of the platform is the central authority here. Together with the board, they make business decisions regarding how the platform runs. They own they exchange platform. It is a little different with decentralized exchanges.

Decentralized exchange platforms are powered by blockchain technology instead of being hosted on a server. The blockchain is a distributed system that hosts projects on nodes scattered across the globe. Hence decentralized exchanges are managed by a community or representatives of the community. No single user owners the platform. They are usually community governed. All the activities on the decentralized exchange is voted on by the community. No single individual owns the platform or makes rules for the platform.

• Control: Centralized exchange platforms usually have wallets where users store and manage digital assets. Once users deposit their crypto in the wallet, they have given the platform full right to have control over how the asset is used or managed.

Having full custody of user digital assets gives the centralized exchange platform the right to make decisions about the assets. For example, the exchange could deduct network fees, lock assets, or even determine whether a user could perform some transactions or not. Many centralized exchanges even maintain a minimum asset balance for users. These are all ways that centralized exchange platforms show that they are in full control of your assets.

But decentralized exchange platforms do not have wallets for users. They do not keep user funds for them or manage it for them. Instead, they provide a channel for users to connect their decentralized wallets to the platform in order to perform any transactions. Hence, the user is in full control of their assets. Both the security of the funds and everything about its management is in full control of the user.

So ownership and control are the two major things that separates decentralized exchanges and from decentralized exchanges. The other differences stem from these two.

Now lets see why centralized crypto exchanges are still in business even with the progress of and intuitive products from decentralized exchange platforms.

Centralized crypto exchange platforms are still relevant because..

• Trading volume: Centralized exchanges still hold the largest trading volume of cryptocurrencies. Binance which is a centralized exchange platform is still at the top by trading volume. With this huge trading volume, comes massive liquidity. So it simply means that if you are looking for an exchange platform where most cryptos are listed, it is likely that you will find it in a centralized exchange platform than a decentralized platform.

• Users/ User experience: The trading volume and other features attracts the largest crowds of crypto users, investors and traders. In every sector, the business that controls the market is where everyone wants to go. So centralized exchange paltforms are still relevant today because they house the largest number of crypto users anywhere.

In order to maintain their huge fanbase, centralized exchanges provide personalized user experiences, making sure that users have all they need to enjoy staying on the platform. For example, many some decentralized exchange platforms are still using web apps. But in order to attract and hold a very large audience, almost all centralized exchange platforms have intuitive mobile apps that most users prefer. They have a dedicated customer support teams that work round the clock in order to ensure prompt settling or any difficulties by users.

• Tools and platform features: Centralized exchange platforms often come packed with crypto tools and features that ensures the users has everything they need. Binance exchange platform for example has a wide range of tools, features and products that its difficult to master all of them quickly. Such tools include prize charts, staking tools, tools for futures trading, stop loss features and many other features. With these attractive tools, but ordering users and advanced traders prefer centralized exchange plaforms.

• Fiat integration: Many centralized exchanges feature fiat integrations. This allows users to perform many transactions that are connected to fiat. That includes purchasing crypto with fiat, exchanging or trading crypto for fiat, and other uses. This have one of the biggest potentials for attracting local users.

One of the biggest challenges of crypto adoption is connecting it with traditional finance. How can a local man on the street purchase crypto from their bank account. By largely supporting fiat purchases and transactions, centralized exchanges reach out to local markets and attract a huge fanbase from there.

• P2P markets: This is not often seen in decentralized exchanges, but it is often a feature of centralized exchange platforms. P2P markets allows users of the platform to deal directly with other users in crypto trades. That includes buying crypto, selling crypto and doing other crypto transaction. This feature is another reason why many centralized exchange platforms will remain in business for a very long time. For example, Binance P2P market is the largest in Nigeria, pulling in thousands of dollars worth of transactions everyday. There are other local P2P markets all hosted on centralized exchange platforms.

• KYC: Most, if not all centralized exchange platforms require users to complete a compulsory KYC process. This usually what the local law requires and they want to comply with such regulations. As such, centralized exchanges are ready to reach a compromise with local or international regulators over their products or terms of use.

Because of always satisfying local regulatory requirements, such centralized exchange platforms earn the trust of institutional investors and attract them for business. Decentralized exchanges do not always require KYC and care little about the identity of the customer. Many investors see this as huge risk and institutional investors are afraid of dealing with outlawed individuals whose identity remain anonymous. For centralized exchange platforms doing KYC and accepting local regulations, they have some extra audience that is not available to decentralized platforms.

Finally

Centralized crypto exchange platforms are still very much in business. They have a lot that keeps them in business and makes them remain relevant. Decentralized exchanges are still very much work in progress. With lots of innovative products, promise of ownership and control, and the opportunity to open up new frontiers, decentralized exchange platforms might still push for market dominance in the future. But for now, centralized competitors still have that upper hand.

Posted Using LeoFinance Alpha