Cryptocurrency exchanges serve as the backbone of the digital asset market, providing platforms for users to trade, buy, and sell cryptocurrencies. There are two main types of crypto exchanges which are centralized and decentralized. Centralized exchanges are managed by third-party entities, offering high liquidity, advanced trading features, and user-friendly interfaces.
On the flip side, decentralized exchanges operate on blockchain networks, allowing users to trade directly with one another without relying on a central authority, offering greater privacy and control. While CEXs dominate in terms of trading volume and ease of use, DEXs also stand out for their security and autonomy. In this blog, we’ll get to know the many different types of crypto exchanges, their unique benefits, and also help you decide which one might be right for your trading strategy.
12 Types of Crypto Exchanges and Their Uses
1. Centralized Exchanges (CEX)
Centralized exchanges (CEX) are online platforms run by third-party companies that help people trade cryptocurrencies. These exchanges are called centralized because they control the flow of transactions, hold funds, and match orders. CEXs use strong systems in the background, such as fast trading systems and automated tools, to help complete orders quickly and make sure there is enough trading activity. This is one of those types of crypto exchanges that handle a lot of trades and give users many different crypto pairs and options for liquidity. Centralized platforms also offer advanced tools for trading, like borrowing and lending, setting stop-loss orders, and margin trading, which make them popular with both regular traders and big investors who want a lot of features in one easy-to-use place.
Centralized exchanges focus on making the user experience better, offering simple interfaces, customer support, and extra services like trading between regular money and crypto, access to tools for algorithmic trading, and options for staking. These platforms store users’ funds in wallets controlled by the exchange, which means the exchange keeps the private keys to those funds. While this is easy for users, it also creates a risk of hacking or problems with the platform, as seen in past incidents. CEXs try to reduce this risk by using security features like two-factor authentication (2FA), storing most funds in safe offline wallets, and sometimes offering insurance for certain assets. Even with these safety measures, users still have to trust the exchange’s security and control.
One of the biggest benefits of CEXs is how they can handle large amounts of trading and liquidity. Since these platforms bring together buy and sell orders from thousands of people, they usually have much higher liquidity than decentralized exchanges. This helps reduce price changes when making big trades. Also, centralized exchanges often allow users to use regular money like USD, EUR, and JPY to buy or sell crypto. For traders and companies looking for a simple and complete solution, CEXs remain the go-to choice for entering the crypto market with easy access, many features, and great liquidity, even though there are still some concerns about security and central control.
2. Decentralized Exchanges (DEX)
Decentralized exchanges, the DEXs, work without the big company or the middleman, letting the people trade right on the blockchain networks. These platforms use the smart contracts to automatically find the match and fully finish the trades, making totally sure the users stay in charge of the money the whole time. These types of crypto exchanges use the money pools instead of the order lists to handle the trades, where the users put the money in the pools and get the rewards, usually from the trade fees. The Automatic Market Makers, the AMMs, are the main system behind most DEXs, setting the prices based fully on how much of an asset there is and how many people want it. The well-known DEXs, like the Uniswap and the SushiSwap, run on Ethereum’s ERC-20 token system, while the others use the different blockchains like the Binance Smart Chain or the Solana to make the trades much faster and cheaper.
One big advantage of decentralized exchanges is the extra privacy and safety they provide. Users keep full control of their private keys and money, lowering the chance of hacking or exchange failures. Since DEXs don’t ask users to put money into exchange-owned wallets, the risk of losing funds due to system weaknesses is much lower. Also, because there are no KYC (Know Your Customer) rules, users can stay anonymous, which makes DEXs a good choice for those who care about privacy.
If you want to create your own decentralized exchange you should focus on meeting the compliance which will help your platform from any legal problems.
While decentralized exchanges offer better privacy and security, they have some problems with liquidity and ease of use. DEXs usually have less money available for trading compared to centralized exchanges because they depend on individual users to provide funds. This can lead to bigger price changes, especially for large trades. Also, DEXs often have more difficult interfaces and fewer trading features than CEXs. Users must deal directly with smart contracts, which can be confusing for beginners. However, with new systems like Layer 2 scaling and cross-chain bridges, DEXs are fixing these issues, making transactions faster and cheaper, and becoming a strong option for users who want full control over their money.
3. Hybrid Exchanges
Hybrid exchanges mix the good parts of both the central and the no-central exchanges, giving people the mix of ease, the money flow, and safety. These special platforms always try to take the strong parts of the CEXs and the DEXs while also fixing the weak parts. In discussions about the types of crypto exchanges, hybrid platforms stand out for their balanced approach. The trade matching, the money gathering, and the deal making usually happen outside the blockchain, just like in the central platforms, but the money holding and the final trade closing use the no-central systems. This model also appeals to developers looking to create a cryptocurrency exchange that blends security with efficiency. By smartly mixing the central and the no-central ways, hybrid exchanges give people the safety and the privacy of the DEXs while also giving them the speed and the money flow of the CEXs.
The biggest good thing about hybrid exchanges is their power to finish the trades on the blockchain while using off-blockchain trade lists to make the trading super fast. This mixed system lets the exchange handle a huge number of trades while keeping the waiting time very low, which is very important for the big traders and the money firms. Hybrid exchanges also bring the extra tools like the trade on loan, the money lending, and the bet-on-price trades, all inside the no-central setup, which the normal DEXs always find hard to do. These special platforms use the off-blockchain trade engines to process the trades super fast, helping to remove the slowdowns that usually happen in the no-central networks, especially when the trading activity gets very high. By smartly using the blockchain for the final trade closing, the hybrid exchanges keep the trust of no-central trading while also making the trading much faster than the central systems.
Even with all the strong good parts, the hybrid exchanges still have some big problems like the money flow and the risk of being too central. Even though they collect money from many different places, including the no-central platforms, they still depend on the central systems for the trade matching and the deal making, which always creates some risks. When exploring the types of crypto exchanges, these challenges highlight why finding the right balance is crucial. One big problem is the control of the trade list or the use of outside companies to hold the money, which can sometimes reduce the trust of blockchain trading. For those looking to create your own cryptocurrency exchange, addressing these issues with no-central trade list systems and new scaling solutions is key. As these exchanges keep getting better, they want to find the perfect mix between the no-central system, the money flow, and the speed, making them a strong choice for the traders who want the best of both worlds.
4. Peer-to-Peer (P2P) Exchanges
A peer-to-peer, the P2P, trade place helps the people swap the money right with each other, cutting out the need for the middle people or the big companies. When looking at the types of crypto exchanges, P2P platforms are unique because they run fully on the special online system called the blockchain, linking the buyers and the sellers so they can switch the digital money without using the third person to hold it. For those wondering how to create a P2P crypto exchange that stands out, using strong security measures like escrow is key. The P2P trade place uses the safe holding method called the escrow to safely keep the money during the swap, making sure that both sides do just what they said before the money is sent. This setup makes the swapping much safer by really lowering the chance of the tricking, as the trade place only lets the money move when both the sides fully follow the steps. Also, the P2P trade places let the people pay in many ways, like the bank sendings, the phone pay, and even the cash, making it super easy for the people everywhere to use.
One big good thing about P2P exchanges is that they give people more privacy and control over their money compared to big trading platforms. People keep full control over their money and secret codes the whole time, lowering the risk of hacks or mistakes by big companies. When looking at the types of crypto exchanges, P2P platforms stand out for their security and user control. Also, most P2P exchanges don’t ask for personal details (like ID checks), so users can stay private, which is great for those who don’t want to share their information. For those wanting to create a cryptocurrency coin, P2P exchanges can offer a direct way to trade without relying on big platforms. But since there are no strict rules, bad people might try to cheat or scam others. To stop this, many P2P platforms use trust scores, user reviews, and help services to make trading safer.
Even though P2P exchanges give more privacy and freedom, they have some problems, like slow trading and fewer buyers and sellers. Since people must find others to trade with, it can take time to get a good match, especially in smaller markets or with uncommon payment methods. Also, since fewer people use P2P exchanges compared to big ones, prices can be less stable, and big trades may cost more. Even with these problems, P2P trading is growing, especially in places where banks are hard to use or where people prefer digital money. As technology improves and more people use it, P2P exchanges will keep getting better, making it easier and cheaper for people to trade directly.
5. Derivatives Exchanges
Derivatives exchanges help people trade things like futures, options, and contracts that last forever, all based on cryptocurrencies. These products get their value from other digital things like Bitcoin or Ethereum. For example, futures contracts let people agree on the price of something to buy or sell in the future, while contracts that last forever are similar but don’t have an end date. These platforms use smart money systems and ways to borrow money to help people bet on price changes, even if they don’t own the thing they’re betting on. Derivatives exchanges often have things like margin trading and liquidity pools to help people make more money, letting them control more things with less money. Famous platforms like BitMEX and Binance Futures are known for offering lots of different crypto products and high borrowing options.
The main thing that makes all derivatives exchanges very special is the ability they give to trade with borrowed money. This is known as “margin trading,” where people borrow money to take bigger bets. When looking at the types of crypto exchanges, derivatives platforms stand out for offering “leverage,” which lets traders make bets on something without paying the full price. While leverage can help traders make a lot of money, it also makes the risks much higher, especially when the markets are unstable. For those interested in how to build a decentralized exchange like Uniswap, understanding risk management tools is important. Derivatives exchanges usually have tools to help manage these risks, like stop-loss orders and ways to automatically close positions. They also provide detailed charts and live prices to help traders make smart choices based on what’s happening in the market.
Even though derivatives exchanges can help people make a lot of money, they also have big risks, especially for beginners. Because of the high leverage, crypto products can cause huge losses if the market goes the wrong way. These exchanges are also often watched by regulators because they worry about unfair trading and price swings. To fix this, some platforms now have rules like limits on how much people can trade and automatic systems that close positions when certain levels are hit to lower risk. Many derivatives exchanges are also adding stricter checks, like KYC (Know Your Customer) and AML (Anti-Money Laundering), to follow worldwide rules. As the market for crypto products grows, exchanges will keep improving, offering better products while reducing risks for traders.
6. Instant Swap Exchanges
Instant swap exchanges are very useful platforms that are made to help people quickly change one cryptocurrency for another, without needing things like order books or middlemen. These exchanges use smart contracts and special systems to help users do automatic swaps easily. Through decentralized pools of money, users can directly swap assets like Bitcoin for Ethereum or stablecoins without needing to follow the usual process of order books. The transactions happen at current market prices and are done quickly, with the price being set based on the money available in the pools. Instant swap exchanges give a simple and easy-to-use experience for traders who want to quickly switch between cryptocurrencies without waiting, like on traditional exchanges.
One big advantage of instant swap exchanges is how fast and simple they are. Unlike other platforms that need users to create buy and sell orders, instant swaps work directly between users, removing the need for a middleman. When exploring the types of crypto exchanges, instant swap platforms stand out for their speed and ease of use. Transactions usually happen in just seconds, with very little effort from the user, making them perfect for traders who want to take advantage of quick changes in the market. For those researching how to build your own decentralized exchange, instant swaps offer a model focused on efficiency and user control. Also, instant swap exchanges usually don’t need you to make an account or put your funds into a wallet that someone else controls, giving more privacy and reducing the risk of problems. This system makes sure users keep full control of their assets throughout the entire process.
Although instant swap exchanges offer convenience and privacy, they can face problems with how much money is available and how well they can grow. When looking at the types of crypto exchanges, instant swaps stand out for their simplicity, but they also face challenges with liquidity. Because these platforms depend on liquidity pools, the size and amount of money in these pools directly affect the swap rates and price changes. For those interested in how to create instant cryptocurrency exchange platforms, addressing liquidity issues is crucial for maintaining stable prices. Low liquidity can lead to bigger price changes, especially for coins that are less common or less traded. Plus, instant swaps usually don’t offer features like margin trading or advanced trading options, which may not appeal to experienced traders. Even with these issues, the growth of Layer 2 solutions and the ability to trade across different blockchains is making instant swap exchanges faster and more useful, making them a better choice for quick and low-cost crypto exchanges.
7. NFT Marketplaces as Exchanges
NFT marketplaces allow their users to easily buy, sell, and trade Non-Fungible Tokens (NFTs). These NFTs as we all know are unique digital items that actually project some real world value and ownership through the blockchain which it is on. These platforms have the amazing ability to run automatically with the use of smart contracts which assist users to easily create, list, and move NFTs without the need of any middlemen. They run on popular blockchain networks like Ethereum, Binance Smart Chain, and Flow.
NFT marketplaces mainly run on decentralized systems and use storage methods such as IPFS (InterPlanetary File System) to ensure that NFTs are permanent and always verifiable. The transactions are governed by smart contracts, which automatically transfer ownership when certain conditions are met, keeping all records secure and transparent on the blockchain. These platforms provide a range of helpful features, such as creating tokens, checking the rarity of items, paying creators royalties, and enabling secondary market sales.
NFT marketplaces are expanding quickly, but they still have several issues to deal with. These include problems with growing bigger, environmental impact, and market swings. Ethereum and other popular blockchains actually come with high fees and also have this problem of slowdowns when too many people are using them at once. This can be so bad as this can result in delays and give out a frustrating experience for users. On top of that, creating NFTs on proof-of-work blockchains is super energy-intensive which indirectly harms the environment. To solve all these issues, some platforms are exploring ways like Optimism and zk-Rollups to make transactions faster and less expensive. But since the NFT market is still very unpredictable, investors could lose money as prices can change rapidly without warning.
8. Automated Market Makers (AMM) Exchanges
Automated Market Makers, or AMMs, are systems used in decentralized exchanges that help people trade without needing a traditional order book. These systems depend on liquidity pools instead of matching buyers and sellers directly. The liquidity pools are filled with tokens that users provide, like ETH/USDT, BTC/ETH, and other pairs.
The price of assets in an AMM is set by a formula, usually a constant product formula, or sometimes other pricing methods like the constant sum or hybrid models. Popular AMMs like Uniswap, SushiSwap, and PancakeSwap use a formula called x * y = k, where ‘x’ and ‘y’ are the amounts of tokens in the pool, and ‘k’ is a constant that doesn’t change. This formula lets the price adjust continuously, depending on the amount of liquidity, so users can trade without relying on an order book.
But, like anything, AMMs have some problems too. One of these is called impermanent loss, which happens when the price of tokens in the pool changes a lot. This can make LPs lose value. However, LPs earn fees from trades, which can help cover the loss, making AMMs a good way to make passive income. There are also a couple of other issues. Slippage is one, and it happens when the price changes between the time you place an order and when it’s actually done, especially in markets with low liquidity or big trades. Some AMMs try to reduce this with slippage tolerance settings, but it’s still something traders need to be careful about.
Also, AMMs can be less efficient when the network is crowded, and gas fees are high, especially on platforms like Ethereum. This can make transactions expensive. But, there is good news! Many AMM protocols are moving to Layer 2 solutions like Optimism and Arbitrum, which are designed to lower fees and make everything faster. As AMMs get better, new ideas like concentrated liquidity and multi-asset pools are being added to fix problems with liquidity and scalability.
9. White-Label Crypto Exchanges
White-label crypto exchanges are ready-made, customizable platforms that providers offer for businesses to rebrand and use under their own name. These platforms come with all the basic tools needed for cryptocurrency trading, such as order books, matching engines, wallets, and payment gateway links. White-label exchanges give businesses a simple solution, letting them save time and resources on development. They also include important features like KYC/AML compliance, liquidity pooling, and support for many currencies.
The main benefit that comes with the use of the white-label crypto exchanges is that businesses can quickly, and without much delay, join the cryptocurrency trading market without any of the need to spend a lot of time or money on building or developing the necessary tools. Since these platforms are already fully built and carefully tested, businesses can start their exchange operations with much less risk and with lower costs. They also offer strong security, with simple encryption and cold storage to safely keep user funds protected. Many of the white-label solutions come with designs that are easy to change, allowing businesses to customize the platform’s look and feel to match their brand.
However, white-label exchanges have some downsides. While they are an easy way for businesses to launch a crypto exchange, there are limits to how much they can change the platform. When looking at the types of crypto exchanges, white-label platforms are often chosen for their convenience but may lack the flexibility that custom-built exchanges offer. These platforms often come with set features that may not fit every business’s exact needs. For those who want to create a crypto wallet alongside their exchange, customization options might be more limited. Also, businesses using white-label exchanges are usually dependent on outside providers for updates, security fixes, and technical help.
10. Institutional Crypto Exchanges
Institutional crypto exchanges are special platforms made to meet the needs of professional traders, big investors, and wealthy individuals. These exchanges usually offer advanced trading features, like fast trading algorithms, very quick systems, and special order types like iceberg orders, stop-loss orders, and limit orders. They also allow for big trades with deep liquidity, which helps big players make large transactions without causing big price changes.
The setup of institutional crypto exchanges is built to focus on performance, growth, and security. These platforms often use advanced technology like co-location services, backup systems, and fast data feeds to make sure trades happen quickly. They also offer strong risk management tools, such as real-time systems that check for market manipulation, along with rules to prevent money laundering (AML) and to know the customer (KYC), to follow the rules set by authorities.
However, even with all these benefits, institutional crypto exchanges come with some problems that can make them less available and attractive. When exploring the types of crypto exchanges, institutional platforms often stand out for their security and large-scale trading options, but they also have downsides. The high fees for trading on these platforms, including high transaction fees and custody services, can be a problem for smaller businesses and regular investors. For companies working with a custom blockchain development company, finding ways to reduce costs while staying compliant with regulations is important. Also, these exchanges face a lot of rules and government checks, as authorities in many countries keep adding stricter rules for crypto exchanges. Institutions must manage these complex rules, especially since laws in different countries can change quickly.
11. Fiat-to-Crypto vs. Crypto-to-Crypto Exchanges
Fiat-to-crypto exchanges are platforms which would best suit those who wish to convert real world currencies like USD or EUR for the cryptocurrencies like Bitcoin and Ethereum. These exchanges will usually require its respective users to go through KYC (Know Your Customer) checks. This is done because of the fact that the processes done in these platforms involve fiat money.
Crypto-to-crypto exchanges, on the other hand, mainly, and most of the time, help users trade one cryptocurrency for another, all without the need to use any regular, normal money. These platforms are mostly made for crypto users and traders who already have some digital coins and just want to swap between different cryptocurrencies. There are many popular crypto-to-crypto exchanges, like Uniswap, Binance, and KuCoin, which are usually using either decentralized or centralized systems, where their users can trade directly and easily from their wallets or by using order books, whatever they like.
The key distinction between the above two actually lies in the infrastructure they use and the user base that these two have. When exploring the types of crypto exchanges, fiat-to-crypto exchanges serve as a bridge for traditional finance and the crypto ecosystem, offering a more regulated and familiar user experience, which is best for newcomers in this space. Crypto-to-crypto exchanges are more focused on the crypto-native community, providing advanced trading tools, liquidity, and access to a broader range of digital assets. For businesses who wish to develop such a platform that will offer both the functionalities, it is actually best to hire blockchain developers for the custom solutions which can make a significant difference in catering to these distinct user needs.
12. Regional and Regulatory-Compliant Exchanges
Regional and regulatory-compliant exchanges are platforms made to follow the rules and laws of specific areas. When discussing the types of crypto exchanges, these platforms stand out for their focus on adhering to local laws, like anti-money laundering (AML), know-your-customer (KYC) rules, and other important regulations. By following these rules, they ensure that transactions are legitimate and users’ funds are safe. Some examples of such exchanges are Bitstamp, which mainly follows rules in Europe and the US, and Coincheck, which mostly works with the Japanese market.
These exchanges use strong security methods to follow the rules, such as regular checks, multi-signature wallets, and storing funds offline. Also, they often have easy-to-use interfaces that help people who are not very good with technology, making it simpler for new traders to join the crypto space. However, the downside of following strict rules is that regional exchanges might not be able to list many different types of assets or offer all kinds of services.
While regional exchanges follow rules better, they also face challenges in growing and reaching a global audience. For example, an exchange that follows European Union rules might not be able to offer its services in the US or Asia unless it follows extra rules. Additionally, rules can be very different from country to country, forcing exchanges to adjust to each country’s laws. This can make it harder for people who want to trade across different countries.
How to Pick the Right Crypto Exchange that Suit Your Needs
When picking a crypto exchange, you need to think about a few important factors like liquidity, security, legal rules, and the types of trades that you can do. When exploring the types of crypto exchanges, liquidity ensures that the orders go through fast. Strong security, like cold storage and two-factor authentication, keeps your assets safe. Exchanges that follow KYC/AML rules protect you legally. Check that the exchange has the cryptocurrencies you want and features like margin or futures trading.
For more experienced traders, look for exchanges with tools like advanced charts, automatic trading, and low fees. User experience is important too, as a simple, easy design makes trading better. Also, check if the exchange can handle large amounts of trading. Make sure to check the exchange’s reliability, customer support, and payment methods to avoid delays or problems while trading.
Build Your Own Crypto Exchange with Shamla Tech
Even though cryptocurrency has clearly reached its peak, the need for secure, efficient, and high-quality exchanges still has a huge demand. You can build your own crypto exchange with Shamla Tech, a top cryptocurrency exchange development company that offers the best and affordable cryptocurrency development services. Our expertise is in creating strong, scalable platforms with important features like high liquidity, strong security systems, KYC/AML rules, and fast transaction processing.
We have successfully provided many customized solutions for centralized, decentralized, and hybrid exchanges. With Shamla Tech, you will get a platform that is built for you, providing a smooth user experience, great scalability, and real-time market data. You can trust our experience to create a secure and easy-to-use crypto exchange that meets the needs of the market.
