Each year, blockchain and cryptocurrencies root deeper and deeper into the fintech ground. For many, distributed ledgers have transformed from a hobby into a full-time job. One way to earn is trading, something it’s hard to imagine the world of crypto without.
Compared to the traditional financial markets and their rich history, crypto trading is relatively novice yet everyone would agree it’s highly promising. Let’s take a quick look at how it is different:
- Higher volatility
- Faster change of trends and moods
- As a result, bigger risks but also potentially bigger profitability
- Lower entry threshold
- A number of decentralization-related factors that make trading more complicated
Given that, trading in digital assets requires specific tools. Let’s rewind those tools’ major evolution stages to understand their advantages and disadvantages as well as where the crypto community is headed.
In January 2009, the Bitcoin network was launched. The blockchain itself represented a peer-to-peer payment system (meaning no middlemen involved) that implied decentralized transfers between any addresses using cryptographic methods. Miners were finding new coins, but their value was just starting to form.
The value is always derived from demand and supply. That said, it was needed to somehow exchange BTC coins for other currencies, including fiat money. The easiest way to do so was via OTC (over-the-counter), when users put up their announcements on specialized forums and traded p2p (with one another). But still, it wasn’t very user-friendly, and the market needed more automated trading instruments. That’s how centralized crypto exchanges appeared.
2. Centralized Exchanges
Decentralized system technologies began active development. Starting in 2011, other blockchains have been emerging with their own native coins, which are colloquially called ‘altcoins’ — alternative coins that came after Bitcoin. Launched in 2015, the Ethereum blockchain enabled people to create their own tokens without having to create a blockchain. By that time already, there were dozens of crypto exchanges, and unfortunately, the world had already heard some of the saddening stories surrounding them.
To understand why exchanges are called ‘centralized,’ let’s break down how they work.
In most cases, when creating an account, a new deposit address is generated for each user. The private key from this address is owned by the exchange, and the user can’t access it, meaning they are not actually owning the address. Almost always, such addresses are transit ones, which means that funds sent to them are eventually accumulated on the exchange’s main cold and hot wallets. After making a deposit, the user sees their balance within an interface of a given platform. They can perform various operations with that balance — trade or request a withdrawal, which will be processed from one of the exchange’s wallets, not a personal one. Transactions the user makes on a platform are written into its database, not an actual chain. This allows venues to process trades much faster — down to milliseconds — compared to blockchains. But as you may have already guessed, there’s a ‘but’: centralization. User funds deposited to exchange-controlled wallets become property of the exchange itself, which simply lets you make use of them.
Since the popularity of cryptocurrency trading was peaking, many projects lined up to be listed on an exchange. ‘Listing’ refers to the situation when a trading platform adds support for a new asset. Paid listing was very common, and prices sometimes reached mind-blowing figures of tens of millions of dollars. Besides, the project had to ensure liquidity across its token’s trading pairs. To match buyers and sellers more efficiently, special trading bots known as market makers (MM) were connected. An MM’s primary task was to make the spread minimal so that users could trade with comfort using available liquidity.
- Multi-currency balance, ability to hold various coins and tokens in a single account
- High speed of trades
- Limit orders
- Trading in a wide variety of assets from within a single place
- Rich toolset
- Lack of transparency in trades
- Wash trading
- Different market depth across trading pairs. Even if there is liquidity, it may be concentrated somewhere far from the market price
- The exchange can see all stop-loss orders placed by users, so theoretically, it opens up a way to manipulate the market
- If the exchange gets hacked, user funds are usually lost forever
- Possibility of exit scam
- Suspension of deposit and withdrawal due to maintenance
- Chance that the account can get into the stop list of the exchange
- Suspension of withdrawal because of sudden spikes in transaction costs
Nevertheless, centralized venues remain one of the main places to trade. But as years pass by, the crypto market is heading toward decentralization and handing users complete control over their funds.
3. First DEXes
DEX stands for ‘decentralized exchange.’ Unlike centralized exchanges, they give users full control over their coins and tokens without transferring them to third-party wallets.
First DEXes were similar to centralized platforms. Limit orders, order books, trading pairs. But such a format didn’t offer much of a competitive advantage. Because each trade was now a transaction on blockchain that everyone had to pay a fee for, traditional MM could not be applied, and without it, there could be no trades. Heavy interfaces coupled with slow confirmation times and insufficient liquidity were a burden for traders. To think about it, imagine three switches that can’t be turned on simultaneously. When you turn one of them on, others get off.
4. AMM (Automated Market Maker) and DEX
Uniswap protocol powered by Ethereum smart contracts was to change the state of things when it came into play back in 2018. It offered one crucial concept — to remove spreads (gaps between buy and sell prices) entirely and allow traders to use all liquidity of a given pair and not only its individual parts scattered around the order book. All thanks to this simple formula:
x * y = k
In plain English, buyers and sellers were now matched not by a random MM bot, but by an automated market-making (AMM) algo. This mechanism told traders the price based on the proportion of two tokens in a pair, while the very quantity of those tokens was their liquidity. Total liquidity that anyone could put to use. Anyone could add liquidity into the pool, too, and the number of those who wanted to do so was on the rise because the fees charged per each trade were distributed among those very people who were making those pools liquid.
Thus, the DeFi (decentralized finance) segment was gaining momentum over 2019–2020. DeFi is moving fast, pools are filled with liquidity, and volumes come close to those observed on centralized counterparts. The crypto market stopped serving professional players only, welcomingly opening its doors to average people as well.
But it turned out that with the influx of newcomers and volumes approaching the moon levels, networks started being congested. Overloads led to bigger transaction fees, making decentralization more expensive than ever.
For example, let’s look at the Ethereum-wide fees as they were on May 19, 2021:
ERC-20 token transfer = $145, exchange in a Uniswap pool = $446. Such abnormal fees most definitely affect centralized exchanges as those have to put deposits and withdrawals on hold until the situation stabilizes.
The high entry threshold hasn’t gone anywhere, either. To launch your own token and make it tradable against others, you need to be a developer at the very least.
But how do we keep decentralization, DeFi tools, and few advantages of centralized exchanges, at the same time excluding the high cost and slow speed of heavy blockchains?
5. Minter: All Switches ON
Minter is a decentralized digital assets marketplace that runs on a fast blockchain. Unlike other networks and protocols, all functionality is implemented at the core level of blockchain, rendering layer 2 solutions unnecessary. This makes it possible to reach high operational speed, independence from external services, and maximal compatibility among components within a single ecosystem.
Key Features & Advantages
- Transactions confirmed in 5 seconds with final blocks (no need to wait several blocks)
- Any liquid coins and tokens swappable for one another
- Liquidity pools with a 0.2% fee that goes straight to providers
- AMMOB: Automated Market Maker pools with on-chain Order Books (limit orders)
- Low transaction fees fixed in U.S. dollars ($0.01 per trade, $0.03 per swap) and payable in any liquid coin or token of the network
- Your own tokens and liquidity pools created in just a couple of clicks
- Cross-chain transfers between Minter, Ethereum, and Binance Smart Chain
Minter combines each and every advantage decentralized trading protocols have to offer, substantially speeds up transfers and swaps and makes them a lot cheaper, and is free of shortcomings associated with centralized platforms.
Yesterday, Minter added support for the two most popular stablecoins, USDT and USDC. This milestone marked the start of massive integration of top-notch digital assets into the network. All in an effort to provide users with the hottest earning opportunities in trading, with low fees and high speed.
Minter aims to become the best DEX in the ever-growing DeFi market: faster, cheaper, simpler. Stay tuned as we’re just getting started!
Minter + chat: Minter news and a place to discuss them
Minter Dev Notifications + chat: tech stuff and how to get it to work
Minter Help: round-the-clock support for general issues
Minter Х: chat for traders (here you can talk about the price!)
BIP Wallet: testing new versions of the app, bug reporting