Cryptocurrencies and blockchain technology have revolutionized the world’s financial landscape. To date, the market capitalization of all digital currencies is around US$358 billion. The growing numbers explain everything; from market cap to transaction volume, the adoption of decentralized technology from individuals, corporations, and governments has taken over the globe.
Because of this technology, we have begun shifting to a trustless economy — an economy without the need for intermediaries or third parties to facilitate the trade and exchange of goods and services. But at this point, much of digital currency trading is centralized. Centralized entities are proven to be vulnerable to hacks and often run with a high regulatory risk.
Centralized crypto trading keeps their systems off-chain. This means they operate as collateral for their clients and transactions made are not recorded on the blockchain. This can lead to massive security breaches and unsafe storage of funds, information, and, most importantly, private keys.
Crypto traders understand the risks involved in trading in centralized exchanges but have continued patronizing such platforms because of their popularity in the mainstream. Lately, however, the decentralized crypto exchange has been gaining traction and securing its share of fans and supporters.
The Need for Decentralized Crypto Exchange
Decentralized exchanges (DEx) aim to tackle the problems that haunt centralized structures. It creates peer-to-peer (P2P) marketplaces directly on the blockchain (mostly using Ethereum) to allow traders to remain as the custodians of their funds. It is a secure, safe, quick, and uncomplicated P2P trading system that allows anyone to trade without unnecessary verification processes or waiting time.
When a new trade is initiated, the DEx platform will temporarily take possession of the transaction’s cryptocurrency portion. Simultaneously, the fiat currency payment will be made directly from the buyer to the seller.
Once the payment has been made, the seller will then verify that the fiat currency transaction has been received, and the cryptocurrency will be released to the buyer. To prevent traders from being locked up during volatile market situations, some platforms will allow the buyer or the seller to put a time limit for each trading step, which is agreed upon in advance.
Now, this type of trading also has its cons. This system only works well if enough buyers and sellers are in the market. The lack of liquidity is a major threat, especially when it comes to tokens that move at lower volumes.
Liquidity Pools and Community-Owned and Run Dex
Liquidity pools have cropped up to solve this problem. They eliminate the dependence of tokens on trade volume and, as their name implies, ensure sustained liquidity at every price level.
Various platforms have pushed for better liquidity in decentralized exchanges by taking full advantage of the perks and pros of liquidity pools.
KeyKey.fi, which is one such platform, recognizes that modern crypto users are now demanding ownership and governance of the infrastructure tools they depend on. As such, KeyKey has pushed the idea of community-owned and run DEx. This means that the decentralized exchange platform is completely owned and governed by the people who power the trades.
Community-owned crypto trading platforms give the users ownership of the exchange through tokenization. Anyone who owns a token of the platform will receive profits from it.
Because of the lack of transparency and security associated with centralized crypto trading, strong demand for community-owned and run crypto trading has emerged. Many of the current crypto trading systems support only a certain number of cryptocurrencies and payment methods because of their centralized non-P2P behavior. Thankfully, community-owned and run crypto trading has the power to change the existing centralized crypto trading system.
Utilizing this new system is more beneficial since users do not have to follow centralized rules. There is no need to pay for dealers or intermediaries; that’s why the costs associated with community-owned and run DEx are significantly lower than centralized ones.
How Does Community-Owned and Run Crypto Trading Work?
Unlike centralized crypto trading platforms that require users to undergo the know-your-customer (KYC) process, community-owned ones don’t need identity verification during registration. Users can access the platform anytime and begin trading with no restrictions. There’s no more tedious, complicated registration processes.
Earning tokens in a community-owned DEx happens when you provide liquidity to the pools. In the case of KeyKey, their LOCK tokens (which, by the way, you can now earn by being an early liquidity provider) entitle you not only to earnings from LP fees but also to governance power and protocol ownership.
There is currently a gap in the cryptocurrency trading market that has led to an unserviced demand. Traders and users express repeated concerns about the security of their funds, lengthy verification procedures, and the need to be able to govern key crypto infrastructures. Community-owned and run crypto trades will close the market gap by offering P2P exchange to everyone and by offering ownership of these platforms through tokenization.