Explore CeFi through centralized exchanges
Now that we have explained everything CeFi, it is time to tell that there are 700 + exchanges at the time of writing. Therefore, we will point you to resources where you can find the exchange that fits you. We will not recommend a specific centralized exchange. Please review the resources of either Coinmarketcap or Coingecko, to find out which centralized exchanges are there and which one suits you best.
Centralized exchanges are Regulated
All the centralized exchanges are regulated. Meaning you can’t really do much on them without doing your KYC. To proceed with activities you wish to do on a centralized exchange, you must fully register your account, identify yourself, and make a deposit using your bank. Depending on your country and bank policy, you should be able to deposit fairly easy. Warning: Only invest what you can afford to lose!
Why Centralized Exchanges?
Centralized exchanges (CEXs) offer high liquidity, robust security measures, user-friendly interfaces, and regulatory compliance, providing traders with efficient and convenient platforms to execute trades and access a wide range of digital assets.
Examples of activities on a Centralized Exchange
Some of the activities you can do on a CEX, are also possible on a DEX. For example on a DEX you swap coins from one to another, on a CEX you can sell your coins to one another. The difference is in the fee structure, which is different for any CEX and DEX. With a CEX the company determine their fee structures, with a DEX everything is arranged in the smart contract so no single authority is able to control the fees.
Staking and yield farming is also possible on both the CEX and DEX. With staking the CEX will take x% fee, while depending on how you stake on a DEX, you could get 100% of the staking rewards yourself, or pay a % commission if you stake in a pool.
There are also different activities possible on a CEX, for example an Initial Exchange Offering. More about the features below:
- Learn & Earn
- Trading Cryptocurrency
- Margin Trading
- Staking
- Yield Farming
- Lending & Borrowing
- Initial Exchange Offerings (IEO)
Learn & Earn
Most Centralized Exchanges offer learn programs with sometimes a monetary value as reward behind them. It is worth exploring, especially as beginner. This way you can earn a few dollars and play with the cryptocurrency almost for free. No risk in losing free money right?
Please do note: to unlock all features of a centralized exchange you do need KYC and usually a small deposit from your bank account. Still, starting this way is a good approach.
Trading Cryptocurrency
Trading cryptocurrency serves as an important financial activity. Centralized exchanges stand as the pillars of this vibrant crypto world. Here, you can engage in the buying and selling of various cryptocurrencies, navigating through an extensive choice of trading pairs to seize market opportunities.
An example of a simple trade option called Spot Trading. In this specific example, you can simply say I wish to buy $ 1,000.- worth of Bitcoin. USDT might be a crypto on the blockchain but being it a stable coin, USDT represents the approximate dollar value. Hence to keep it simple we will buy for $ 1,000,- in the examples.
So if we fill in $ 1,000, the tool will automatically convert how much Bitcoin you can buy with that. The system automatically fills in the price, but you can change it to your desired price for either buying or selling. If the price can’t be met immediately, it will stay open until met, or cancelled. $ 1,000 will get us 0.01622 BTC at the current market conditions:
Margin Trading
A whole lot riskier than regular trading is margin trading. Margin trading amplifies the potential returns and risks associated with cryptocurrency investments. This trading strategy enables us to leverage borrowed funds from the exchange, thereby magnifying both gains and losses.
By strategically utilizing borrowed capital, you can open a larger position beyond your initial investment. This can potentially maximize the profits during favorable market conditions. To use this feature you must always deposit funds into your trading account. Most platforms nowadays also offer some sort of quiz to see if you actually understand what you are doing to prevent people without a clue to lose money. Example interface of Margin Trading:
In this example we will fill a Margin Trading order again of $ 1000. To zoom in on the picture:
Here is the motivation of the filled in position. Current factors: BTC trades at $ 61,735.02 and we will spend $ 1,000 to open the position. In this scenario:
- The stop price is set at $61,850 USDT, slightly above the current price of Bitcoin.
- The limit price is set at $61,700 USDT, a bit lower than the stop price to ensure execution within the desired range.
- The amount of Bitcoin to be traded is recalculated to be approximately 0.01617895 BTC, ensuring that the total trade value does not exceed 1,000 USDT. Also taking into account the estimated fee displayed in the above image.
It is essential to exercise caution, as margin trading comes with increased risk due to the possibility of liquidation in volatile market conditions. If you really don’t know what you’re doing, avoid interacting with Margin Trading because positions can easily liquidate (kill) you, leaving you without any funds.
Staking
Want to actively participate in blockchain networks and earn rewards? Staking presents an attractive avenue for asset utilization. This process involves holding and locking up cryptocurrencies in designated wallets or platforms to support the operations and security of the underlying blockchain.
Staking your assets contribute to network consensus such as Proof of Stake (PoS), thereby earning staking rewards in return for your contribution. But, if you stake through centralized exchanges, you usually give away your way of governance. So you aren’t directly supporting decentralization by staking on centralized exchanges.
Yield Farming on Centralized Exchanges
Yield farming is a strategic method to enhance cryptocurrency holdings and earn passive returns. This approach requires to deposit funds into designated pools on centralized platforms. Rewards such as additional tokens or a share of trading fees can be earned for the liquidity you have provided. When you provide liquidity, you often need to provide 2 assets. For example ETH and WBTC. That means that you provide liquidity to the trading pair ETH & WBTC and can earn on it by everyone interacting with it by trading the pair on that platform.
By doing the yield farming, you contribute to the liquidity and functionality of these platforms. You must also stay sharp regarding associated risks. It is important to do thorough DYOR before engaging in yield farming.
Lending & Borrowing
You can perceive centralized exchanges as hubs for facilitating lending and borrowing activities within the crypto ecosystem (although it is also possible with DeFi, CeFi is more suitable for beginners). You can leverage your crypto assets to earn interest by lending them to other market participants. Borrowers gain access to liquidity by collateralizing their assets, enabling them to execute margin trades or fund other investment strategies.
Initial Exchange Offerings (IEO)
Initial Exchange Offerings (IEOs) have gained popularity as a preferred fundraising method within the crypto space. IEOs provide us with access to (vetted) blockchain projects and token offerings. By leveraging the exchange’s infrastructure and user base, IEOs offer enhanced credibility and transparency compared to traditional Initial Coin Offerings (ICOs).
Through participation in IEOs, we get early exposure to promising projects while enjoying the convenience and security afforded by established exchange platforms. But don’t be fooled, also IEOs can be rug pulled, abandoned or turn out as a not great investment. Always DYOR.
