With the inception of bitcoin a decentralized digital currency, cryptocurrency trading space have evolve and witnessed significant growth over the years, from anonymous bitcoin trading in 2010 to centralized trading where market maker and taker trade using order books to book and trade various cryptocurrencies by paying a portion of transaction fee on centralized exchanges.
The need to regulate crypto transactions forced centralized exchanges to make it users undergo a mandatory know your customer service (KYC) which aim to tackle illegal transactions conducted in the crypto space this increase in mandatory data registration with centralized exchanges made some crypto developers to initiate the idea of decentralization exchange (DEXs) that bypass the need for KYC registration for users.
The push for KYC and anti money laundering policies made decentralized exchanges to gain traction in the crypto space, we saw decentralized finance (DeFi) at it peak in 2020-2021 with over $250 billion total value locked, these peak in value was attributed by most users inclined to privacy, the rise in centralized exchanges hacks also prompted users to seek alternative exchanges like DeX where they can connect their wallet and trade directly on any centralized exchanges without leaving their assets in custody of third party exchange.
Hybrid exchange
Technology is gradually evolving at a fast pace, blockchain have brought about lots of developments lately, although most of these new innovations tend wear of quickly as their hype are use to kick start most new bull run, every bull run seem to be triggered with some kind of new innovation which often dies off slowly as market cools down we are currently experiencing the boom of artificial intelligence (AI) and Social finance (SoFi) which might likely trigger the next bull run hype in crypto space.
DEX and CEX trading could be another old hype in the crypto space as a newer hybrid exchange innovation that combines elements of both centralized and decentralized exchange features to provide users a CEX to DeX like crypto experience is at the forefront of being unveil in 2023, this new idea of trading is not yet widely adopted by users in crypto space.
A hybrid like exchange is said to have features akin to CEX and DEX in a single platform, a centralized exchanges deals with liquidity pools and order books while DeX operates using smart contract for execution of trades a hybrid exchange matches those two features together to provide high speed and efficient trading to users, in terms of security a hybrid exchange leverage that of DeX to give users control over their assets and use protection offered by centralized authorities to protect users funds through KYC but in reality a hybrid exchange will drastically reduce counterparty risk by allowing users to trade by connecting their wallet to the exchange, they allow cross chain trading and are as well in compliance with regulatory law by implementing KYC and anti money laundering policies (AML) for users.
Combining CEX and DeX like feature could be a new game changer to mark a new milestone ushering a new kind of crypto trading experience for users this new feature strengthen users security to experience a centralized order matching and liquidity trading speed while they control their funds using private keys while still able to trade their assets on different blockchain networks
Phemex a crypto derivative exchange based in Singapore is a pioneering exchange looking to integrate this new technological experience for its users to access CEX like liquidity added with decentralized user friendly system for it users to access DeFi opportunity in its platform.
This new concept of a hybrid crypto exchange seem a bit farfetched from being a reality it Cex-DeX like feature is an amazing idea for crypto users but still have limitation as having a fully operational decentralized hybrid exchange can be difficult since it will be hard for these exchange to embrace ethos of decentralization its features seem it could take some good years before becoming fully widespread for use hybrid exchange could be a new boost for crypto adoption as it could be used to attract both centralized and decentralized users into exploring unlimited potential in blockchain technology.
This new innovation seek to strike a balance between the benefits of centralized and decentralized exchanges. They aim to offer the security and user control of DEXs while providing the liquidity and speed associated with CEXs.