Steemit Crypto Academy Contest / S1W2 – Reviewing Centralized Exchanges by @jehoshua-shey

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Eventually, most crypto assets end up being exchanged on exchanges. This is because to realize the value of an asset, it has to be exchanged for another asset or money💰.

When using exchanges, there are two kinds to choose from - centralized exchanges and decentralized exchanges. The difference between these two is visible in their nomenclatures with the former being controlled by a central authority and the later by nobody.

In this post, I place emphasis on centralized exchanges with sights on one in particular.

AN OVERVIEW OF CENTRALIZED EXCHANGES

Centralized exchanges are under the control of a central authority. This means someone is responsible for damages and so precautions have to be put in place. These exchanges are not trustless, their trust grows with their track record. A lot of work is put into these exchanges to make them work and so it's not unusual to see centralized exchanges with many features that make people want to exchange with them.

Centralized exchanges also use an order book model to facilitate exchanging on their platform. This together with different order types and some other features help users to set custom orders. In truth, a lot of exchanging go on on centralized exchanges, far more than decentralized exchanges.

With the order book model, orders are set and are filled when a corresponding order is set. This order book is visible to all and is in the custody of the centralized exchange.

Centralized exchanges usually have a well structured procedure for listing of coins. These coin projects have to undergo a number of procedures and at the end, mostly tg safe ones are listed.

BENEFITS OF CENTRALIZED EXCHANGES

For different reasons, the crypto exchange market is highly polarized when it comes to preferred kind of exchanges. Some favor centralized exchanges while some favor decentralized exchanges.

Which is better? It depends on why you're asking.

If you're wary of security of funds you might want to be rest assured with decentralized exchanges where you alone hold your keys although this is bad new for recovery of lost keys.

Asides from security, if you startup a crypto project, getting it listed on a decentralized exchange is far less of a big deal than putting it up on centralized exchanges. Then again, this is bad news for scam prevention.

That said, here's quickly the benefits of centralized exchanges to users.

1. LIQUIDITY

Due to the order features and who-knows-what-else, a lot of exchanging go on on centralized exchanges. If you ask me, I'd say on centralized exchanges you tend to trade with more insights and flexibility than on decentralized exchanges, then there's the added bonus of some trading features like margins and futures, that make lots of trades happen on a centralized exchange in a day.

2. ACCOUNT RECOVERY

Lost your password? No problem. The keys to users wallet are not stored by the user but by the exchange. The user has a password to access their account. If this password is lost, it can be reset and the account recovered using the email address or phone number provided at KYC. Some exchanges restrict withdrawal activities for some hours after a password reset.

3. MORE RELIABLE COINS

Centralized exchanges (please let's call then CEXes from now on) take their time to vet any coin to be listed. There's a rigorous process that makes it difficult for scam coins to just list on the platform. The exchange also delists under performing coins which have been listed. This implies that projects on CEXes are monitored. Thus, coins on CEXes are more reliable than decentralized exchanges.

4. PROMOTIONAL PACKAGES

Interesting, CEXes also does marketing and sometimes in collaboration with projects. There are packages where rewards are given to people who trade up to a certain amount of a particular coin during a specified period. There's also the referral bonus usually given by many exchanges. This packages fuels users' excitement while using CEXes.

5. MARGINS

I like this one. (*In Chris Hemsworth's voice 😀)

With margins, you can borrow from the CEX and trade with it. You keep your profits and your losses as well, the exchange collects a tiny fraction hourly as interest for money borrowed. Some coins allow up to 10x margins on some exchanges, meaning that someone can make a whooping amount of ROI than normal.

Pro. Tip.: When you trade with margins, it's called margin trading. When you hodl with margins, it's called margin hodling.

6. CUSTOM ORDERS

You don't have to pay whatever the AMM says like in many decentralized exchanges. On CEXes, you trade on your terms. If you don't like a p ice, you set yours. This is called a limit order. When a corresponding order is place, yours will be filled.

7. MARKET INSIGHTS

On CEXes, you tend to trade with far more information on the spot than in decentralized exchanges (okay, please let's call them DEXes from now on). You have the order book to see the order volume and spread, you have sophisticated candlestick charts to comprehensively visualize price actions plus some CEXes also provide indicators and a brief info on each coin at the trading page.

This almost goes without saying, some CEXes categorize their coins and this gives some valuable market insights as to trending categories.

WHAT I LOOK OUT FOR ON CENTRALIZED EXCHANGES

Personally, I consider LIQUIDITY, margins and order types to be of paramount importance when choosing a CEX to trade on. On another day, I may look out for trading pairs but mostly I search for the initial three.

LIQUIDITY

I need to be sure something is happening with a coin before I go in to buy. Exchanges with higher liquidity tends to give valuable insight to the price action of a trade pair. With this, I can make well advised decisions when trading.

MARGINS

I love trading margins I have a special portion of my portfolio dedicated to it. I want to see those high margins, 10x, 5x and so on. Any CEX that provides margins on the STEEM/USDT pair now, automatically becomes my second steem wallet 😄

With margins, I earn far more than I should though my losses can be very bad. No pain, no gain. It's a game of carefulness. Protection of funds is more important than winning a trade for me in margin trading and that's why proper risk setup is the final part of my TA.

ORDER TYPES

Once I was burned because I couldn't place double orders on an exchange (I won't mention the name). I placed a BTC sell trade and was in profit then went to sleep. I was supposed to have preset a trailing stoploss and a take profit order but this exchange had no such feature for double orders. I could only set 1 and I set for take profit instead. Trade went South and those my bitcoins have not been found till today.

If I'm trading on an exchange, I'll look for the order types. I find the limit order and the OCO (One Cancels the Other) type very crucial.

MY FAVORITE CENTRALIZED EXCHANGE

My favorite CEX is Binance. I prefer it because it checks most of the boxes - liquidity, margins, promo packages, etc.

Binance is the most popular crypto exchange in the world today, that's according to CoinmarketCap. It has over $76B in trade volume over the last 24 hours and more than 600 coins listed. Abundant liquidity and variety for short.

Binance stores users' assets in a cold storage which means a successful attack is very unlikely. The exchange also has a DEX that makes it possible for users to enjoy the benefits of decentralized crypto.

Here are some of the unique features I like about Binance.

1. AUTO-INVEST (BINANCE EARN)

Binance has this feature where you lend you coins and accumulate interests. With auto invest, you can create an investment plan and set your investment amount.

_{Screenshot taken from Binance}

2. FLOATING WINDOW

With this feature I can keep track of price while doing other stuff on my mobile like making a Steemit post. Binance is very creative with their floating window, it can be reduced to a small button adjustable across my phone screen. Tapping it reveals prices.

3. LAUNCHPAD

Here is where some new projects take off from on Binance. These projects usually explodes as they are well vetted and have the attention of Binance's 90 million+ users. On Binance launchpool, you can stake your BNB to farm rewards.

_{Screenshot taken from Binance}

There's currently a launch going on for GAL tokens. Users can stake BNB to farm GAL.

_{Screenshot taken from Binance}

4. MARGINS

Binance two type of margins - cross and isolated. For isolated, it offers really good margins on many pairs eg. BTC/USDT 10x, BNB/USDT 10x, LINK/BUSD 10x, ADA/USDT 10x, TRX/USDT 10x, SOL/USDT 5x, DOGE/USDT 5x, etc. These are the highest margins I've seen and they're on Binance.

5. ORDER TYPES

Binance has four main order types for spot and margins. They are: limit, market, stop-limit and OCO.

• For limit, you set a price simply different from market price and then set the quantity desired.

• For market, you set the quantity only as the order will be filled at current market price.

• For stop-limit, you set a trigger price, then a desired trade price and quantity. Here, when the trigger price is reached, an order for the desired price and quantity is automatically set and when that price is reached, the order is fulfilled.

• OCO is simply a combination of limit and stop limit order under the condition that if one gets filled the other is cancelled and if one is cancelled manually, both will be cancelled.

_{Screenshot taken from Binance}

6. P2P

This has been a main stay for crypto in Nigeria. Here users can buy coins with fiat from other users and Binance serves as escrow. This makes the trade trusted as there's no chance of fraud as long as the rules are kept - which is not to release asset before confirming payment.

_{Screenshot taken from Binance}

7. MARKETS

Binance has a lot of coins for trade. There are over 600 coins listed on Binance. There are so many pairs to. There are BTC pairs, BNB pairs, ETH pairs, USDT pairs, etc. On Binance, users can either trade spot, margin or futures.

The pairs can be sorted according to their name, 24-hour volume, price, percentage change over 24-hours. This helps to sort the market and give clear picture of what's happening in the market. Name sorting also helps to find coins easily.

_{Screenshot taken from Binance}

8. ALERTS

For every pair, Binance has an alert feature. This pushes a notification when the condition in the alert is met. I have an alert set for whenever ETH drops below $2800 - a level I consider a major psychological support.

_{Screenshot taken from my notifications}

To set alerts, simply click on the alert icon at the bottom of the chart page of the desired pair.

_{Screenshot taken from Binance}

_{Screenshot taken from Binance}

_{Screenshot taken from Binance}

_{Screenshot taken from Binance}

CHANGES I'D LIKE TO SEE IN BINANCE

There are two change I wanted on Binance. One has already been effected and that was the introduction of the STEEM/USDT pair on Binance. The next change I would like to see is introducing the STEEM/USDT pair to Binance margin.

If this happens it means there'll likely be a staking plan for STEEM on Binance which will increase the demand and use case of STEEM. Also it will mean that I can enjoy much more profits than usual and this will help me build my SP faster.

I expect that Binance will want to begin with a 3x isolated margin for STEEM/USDT though I don't mind a 5x. I can imagine buying making 3x profit on my steem trades like 300% when steem doubled few weeks ago.

Staking STEEM on Binance will also be very interesting too. I think it will have an impact on delegations on the Steemit platform depending on what Binance is offering. Good competition will benefit us delegators who will have juicier rewards to choose from.

SHORTCOMINGS OF CENTRALIZED EXCHANGES

Needless to state that there are shortcomings on CEXes. There's been hack in recent years and there's still the possibility for a repetition today. Security of funds doesn't depend on who holds the keys/assets - that's for the blame game, it depends on how the keys/asset are kept.

So for shortcomings, I see poor storage of user assets and also poor monitoring and assessment of projects. These two can lead to loss of users' funds.

WHAT CAN BE DONE?

Proper storage of users fund and security of user account is key though the later also involved the user. For the former, since the user has no custody of the funds the exchange can employ the use of secure cold storage to store users assets and should also provide for multiple-factor authentication amongst other measures for withdrawals. Fortunately, Binance does all these and many other CEXes too.

Also, proper assessment should be done when vetting during the listing of coins. This will ensure that users' are only given the option of genuine projects not rug-pulls which is a major menace in crypto these days. When these projects are also listed, the CEX should ensure proper monitoring of the project to ensure that any anomally or fraudulent activity is quickly spotted and addressed.

CONCLUSION

Centralized exchanges definitely has more features and little wond more liquidity than decentralized exchanges. For all the benefits acclaimed to be associated with DEXes, CEXes still finds the most application. One of them, the most popular and my favorite is Binance.

Binance boast a lot of features that makes trading on the exchange a necessity. They offer attractive margins, different relevant order types, a launchpad, p2p and very importantly, liquidity. I'd like to however see a STEEM/USDT margin listed on Binance as well as better assessment and monitoring of projects on the exchange.

Thanks for reading.

I would like to invite @jollybake @okorisamuel @chiwill @armstrongdiho @handel69 @bennethade @adorable-diala to take part in this contest.