Today, there are more than 500 crypto exchanges around the globe and the number continues to grow with every passing week.
A cryptocurrency exchange is an online platform that allows you to exchange a fiat currency for a crypto asset or one digital currency for another. As crypto trading grows, an increasing number of companies are developing more advanced and secure crypto exchange software.
However, not all crypto exchanges are made equal. While most crypto exchanges, such as Coinbase and Bitfinex are centralized, there are a few decentralized exchanges too, such as RuDex and Waves Dex. Recently, a third type of crypto exchange has emerged that is making headlines in the crypto world. It is called a hybrid cryptocurrency exchange.
Read on to more about hybrid crypto exchanges.
1. Evolution of Cryptocurrency Exchanges
The idea of crypto exchanges began with peer-to-peer trading of cryptocurrency, giving rise to decentralized exchanges (DEX). As decentralized exchanges don’t need a middleman, the cost of transaction and trading fees are next to none.
They are also far more secure. However, as trading transactions take longer to process, most DEXs lack liquidity. They also have laxed KYC and AML verifications, and are not regulated.
Cryptocurrency exchanges (CEX), just like their traditional counterparts, act as intermediaries. So, they charge trading and transaction fees. As a centralized white label crypto exchange has to follow KYC and AML regulations, most CEXs are legal and regulated. They are also easy to use.
Recently, hybrid exchanges seem to have taken off.
2. What Are Hybrid Cryptocurrency Exchanges (HEX)?
A hybrid exchange offers the perfect combination of centralized and decentralized platforms.
CEX + DEX = HEX
These exchanges aim to provide speed, legal compliance, and liquidity of a centralized exchange along with the security of a decentralized exchange. You will be able to enjoy all the perks of a CEX while trading directly from your hardware wallet as a DEX does.
Right now there are only a handful of hybrid exchanges such as Next and Eidoo. However, as various companies have started developing hybrid white label exchange software, we will see new platforms emerge in 2019 and beyond.
3. Why Hybrid Exchange Alternative?
One of the primary reasons why the trend is shifting towards hybrid exchanges is to provide the best possible functionality with enhanced security.
CEXs are vulnerable to cyberattacks. As the CEXs act like intermediaries, investors are required to trust them for keeping their funds and identity safe. They don’t have any control and custody over their funds. In other words, hackers can steal hard-earned funds from traders although exchanges get hacked. In a recent cyberattack on Coincheck, a Tokyo-based cryptocurrency exchange, cybercriminals stole crypto assets worth almost $533 million.
Most centralized exchanges, especially the ones that are not regulated, are also notorious for engaging in front-running. Front-running involves exchanges inserting their own orders first in anticipation of big price movements. This considerably undermines the trading capabilities of individual traders.
DEXs, on the other hand, lack liquidity as they are not suitable for institutional investors. That’s why many crypto experts are exploring the possibilities hybrid exchanges can offer.
4. Benefits of Hybrid Cryptocurrency Exchanges
Hybrid cryptocurrency exchanges offer a few stellar benefits to both, individual and institutional investors.
- They bridge the gap between DEXs and CEXs in terms of functionality, regulation, and transparency. It’s a win-win for everyone.
- They provide access to the real-time trading process for individual traders.
- You can integrate existing conventional trading solutions into the exchange platform using blockchain infrastructure.
- Users can enjoy a transaction speed as fast as or better than CEXs. It applies to both, crypto-to-crypto and crypto-to-fiat currency transactions.
- Traders get access to an extensive array of trading tools that provide better reliability, modularity, and scalability.
- Traders will not need to keep their funds on the exchange. Thus, their crypto money will be less vulnerable to cyber attacks.
- Users don’t need to manage two sets of credentials as most HEXs require a synchronized identity model.
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