Hybrid Crypto Exchanges: The Perfect Blend of DEX and CEX Solutions

Beginner’s Guide / 20.06.2020

Cryptocurrency exchanges arose from the need to trade digital currencies, just like in forex trading. If one wishes to change hard currency into digital currency, they use crypto exchanges to acquire such assets as bitcoin stored in digital wallets. 

Types of Crypto Exchanges

However, despite their unprecedented growth and infiltration into markets, cryptocurrencies cannot replace conventional and traditional platforms. This necessitated a look into how physical platforms could be incorporated with cryptocurrencies. Thus, centralized and decentralized exchanges emerged. 

  • Centralized exchanges (CEX)

Centralized exchanges are those that involve an intermediary to facilitate transactions between buyers and sellers. The intermediary charges transaction fees and oversees the process to make sure it follows local regulations. 

Centralized exchanges are governed by a singular authority, which makes them vulnerable to hacking and tampering. Trades are conducted in high volumes and high liquidity, both of which are significant advantages. This exchange’s disadvantages are the risk of hacking, indirect ownership of funds, and little transparency. 

Examples of centralized exchanges include Bitfinex, Binance, and Coinbase.

  • Decentralized Exchanges (DEX)

Conversely, decentralized exchanges are just like Bitcoin, where no third party is involved, and the seller and buyer can interact directly. This exchange operates in a decentralized fashion; without a central authority, thus supporting peer to peer trading. Unlike centralized exchanges, these provide users with anonymity and security, which a lot of people prefer. The user also has full control of their funds. 

It also allows for excellent transparency since ledgers of transactions are available for anyone to check. This, in turn, prevents tampering and hacking of the records or any form of corruption. 

Its disadvantages are that the need for anonymity and security make for slow transactions and low volume trade. They do not have to follow the rules due to autonomy, which allows for malicious and illegal activity. Decentralized exchanges include Bitshares, Rudex, WavesDex, SIBEX.

These two significant types of crypto exchange paved the way for the creation of a hybrid system that was preferable. This system leverages both exchanges’ advantages while reducing the same disadvantages to creating a high functioning exchange. 

Hybrid Exchanges

As the name suggests, this exchange is a combination of both centralized and decentralized exchanges. The user decides whether to trade with or without an intermediary and have complete control over their funds. 

Hybrid crypto exchanges specifically take advantage of dependability and fund liquidity by CEX and DEX’s security and anonymity. They are of significant interest to individuals, corporations, private investors, and entities looking to tap into cryptocurrencies. 

The idea of a hybrid crypto exchange is relatively new, with just a number of them either operational or in the beta testing stage. Some of the features of a hybrid crypto exchange include: 

  • Management of liquidity – an advantage drawn from centralized exchanges- allows an increased crypto trading flow. 
  • Secure transaction – this borrows from decentralized exchanges, assuring customers that their operations occur in a highly secure environment. 
  • High performance – the combination of CEX and DEX advantages certainly improves performance one would get from either exchange. 

Benefits of Hybrid Exchange

  • Control

By incorporating CEX features, third party operators are introduced to a platform that once enjoyed autonomy. A hybrid exchange’s advantage is that customers have more control over their funds than control exercised by third parties in centralized exchanges. 

  • Legitimacy

One major issue with decentralized exchange is that its autonomy and lack of central authority open it to malicious activity. With hybrid exchange, regulations of cryptocurrency are introduced and followed, making them more legitimate. 

  • Security

Funds are stored in hot wallets in a centralized exchange, which is very vulnerable to illegal access and hacking. A hybrid exchange negates this risk by providing tamper-proof wallets for cash storage, making it difficult for them to be hacked. 

  • Speedy Transactions 

Decentralized exchanges are slow in processing transactions, but they provide transparency for validity and proof. With hybrid exchanges, transactions are speedy, and the added advantage of transparency from a decentralized exchange is maintained. This makes the hybrid exchange very attractive for traders. 

  • Scalability 

Hybrid exchanges are highly scalable, which will allow for any volume of trading soon. It is predicted to be the future of crypto trading, and its scalability and reliability are poised to make it very successful. 

  • Affordability 

Hybrid exchanges are also cost-effective because they combine CEX with the decentralized applications from DEX platforms. These Dapps allow for peer to peer referrals, which save on cost for most businesses or corporations. This also creates exposure, which can increase business. 

Examples of Hybrid Exchanges

Qurrex

Qurex was the first-ever hybrid exchange platform, created in 2018. It is a cutting edge platform that caters to trading by combining conventional stock exchange with cryptocurrency trading, which is decentralized. It is high performing and heavily secure, making it a perfect example of hybrid exchanges. 

Joyso

This exchange takes advantage of smart contracts technology to guarantee efficiency and security while trading. One can trade with Ethereum and TRON on the platform without registration, and its records are available on etherscan. 

Next.exchange

This hybrid exchange is for digital assets and boasts of security and uniqueness. It is also under the purview of British and Dutch regulations on cryptocurrency to ensure its transactions’ legality. 

Other examples include Modular Hybrid Decentralized Exchange, Blockchain.io, Eidoo, and Pryvatex

Conclusion

Hybrid exchange is the future of cryptocurrency and trading. It minimizes the disadvantages of CEX – like third party involvement and DEX – like lack of regulation. It creates a high performing platform that combines the advantages of centralized and decentralized exchanges. These include regulations, security, and anonymity, speedy transactions, and transparency. In doing so, the hybrid exchange is quickly becoming the much-preferred platform by combining conventional means with new ideas in cryptocurrency.

After realizing the setbacks of centralization in the financial industry, Carol has dedicated her career to apprise everyone on the benefits of blockchain technology. When she is not writing, she’s probably somewhere in the park reading a book.