The crypto markets operate with some similarities to traditional financial markets, but they also have unique characteristics. The primary difference is that there are two distinct types of exchanges - centralized exchange and decentralized.

Centralized vs. Decentralized

Centralized Exchange (CEX)

The CEX operate more like a traditional Equity Market. Examples: Binance, Coinbase, Kraken, OKX, Bitstamp.

How They Work:

• Operated by a central entity (a company that manages the exchange).
• Users deposit funds into the exchange, which holds them in custodial wallets.
• Trades are executed via an order book maintained by the exchange.
• The exchange matches buyers and sellers and provides liquidity.
• Transactions happen off-chain, meaning they are recorded within the exchange's database before final settlement on the blockchain.

Advantages of CEXs:

• High liquidity – More users and institutional traders lead to faster trade execution with tighter spreads.
• Better user experience – Easy-to-use interfaces, trading charts, and fiat on/off-ramps.
• Faster transactions – Trades execute instantly since they don’t rely on blockchain confirmations.
• Security measures – CEXs implement security protocols like two-factor authentication (2FA) and insurance for lost funds (in some cases).

Disadvantages of CEXs:

• Custodial risk – Users don’t control their private keys; the exchange holds the assets.
• Hacking risks – Centralized databases and wallets are prime targets for cyberattacks.
• Regulation & KYC requirements – Users must complete identity verification (KYC), and governments can enforce compliance.
• Potential withdrawal restrictions – CEXs can freeze assets due to regulatory orders, maintenance, or insolvency (e.g., FTX collapse).

Decentralized Exchanges (DEX)

DEXs operate differently to a traditional exchange. Examples: Uniswap, SushiSwap, Curve, Balancer, dYdX

How They Work:

• No central authority controls the platform.
• Trades happen directly between users via smart contracts on the blockchain.
• Instead of an order book, many DEXs use Automated Market Makers (AMMs), where liquidity pools replace traditional buyers and sellers.
• Users trade from their own wallets, meaning they retain control of their funds at all times.

Advantages of DEXs:

• Non-custodial – Users keep control of their private keys and funds.
• Privacy – No KYC (in most cases), as transactions are fully on-chain.
• Resistant to censorship – No centralized authority can freeze accounts or block access.
• Access to a wider range of tokens – Many smaller or newer tokens are available before they reach CEXs.
• Composability – Can be integrated with DeFi protocols for lending, borrowing, and yield farming.

Disadvantages of DEXs:

• Lower liquidity – Some DEXs struggle with high slippage for large trades.
• Slower trade execution – Transactions require blockchain confirmations, making them slower than CEXs.
• Higher fees on-chain – Gas fees can be expensive during network congestion (e.g., Ethereum).
• Impermanent loss – Liquidity providers in AMM-based DEXs can experience losses due to price fluctuations.
• Complex user experience – Managing wallets, private keys, and gas fees can be challenging for beginners.

Spot Crypto Market

• Structure: Primarily electronic order-driven exchanges (like equities).
• Venues: Centralized exchanges (CEXs) like Binance, Coinbase, Kraken, and decentralized exchanges (DEXs) like Uniswap, Curve, and dYdX.
• Order Book: Public order books exist on CEXs (like Binance or Coinbase Pro), but DEXs primarily use automated market makers (AMMs).
• Execution Strategies: Market participants use algorithms like VWAP, TWAP, Iceberg Orders, and Smart Order Routing (SOR) to minimize slippage.

Perpetual Futures (Perps)

• Structure: Derivative products traded on both centralized and decentralized platforms. Perps are future contracts without an expiry date. The price of the contract follows parity with the spot product by requiring regular payments (every 8 hours or so) where long positions pay or receive a payout based on the pricing comparison to spot.
• CEX Venues: Binance Futures, Bybit, Deribit, OKX, CME (regulated perps for BTC and ETH).
• DEX Venues: dYdX, GMX, Perpetual Protocol.
• Key Feature: No expiration date; traders pay or receive a funding rate periodically to keep the contract aligned with the spot price.
• Order Book: Available on CEXs; AMM-based or hybrid liquidity models on DEXs.
• Execution Strategies: Common strategies include market making, arbitrage, and momentum trading.

Crypto Options

• Structure: Derivative contracts providing the right, but not obligation, to buy or sell at a set price.
• Venues:
  • CEXs: Deribit (dominates BTC and ETH options), OKX.
  • DEXs: Lyra, Dopex, Aevo (on-chain options with varying liquidity models).
• Order Book: Available on CEXs; DEXs often use pooled liquidity with AMMs.
• Execution Strategies: Covered calls, cash-and-carry arbitrage, and volatility trading strategies like straddles/strangles.

Crypto Futures (Standard)

• Structure: Traditional expiry-set futures contracts.
• Venues:
  • CEXs: CME (regulated BTC and ETH futures), Binance, OKX, FTX (formerly).
• Key Feature: Expiry dates with physical or cash settlement.
• Order Book: Centralized order books on major exchanges.
• Execution Strategies: Calendar spreads, basis trades (cash-and-carry), and hedging strategies.

Structured Products (Yield & Derivatives)

• Structure: Custom structured products offering yield, options-based income, or fixed return mechanisms.
• Venues: Ribbon Finance, Squeeth (Opyn), Friktion (Solana, formerly).
• Execution Strategies: Selling covered calls, principal-protected strategies, and exotic options.

Decentralized Lending and Yield Markets

• Structure: Similar to repo or money markets in traditional finance.
• Venues: Aave, Compound, MakerDAO.
• Order Book: No centralized order book; lending rates set by protocol demand-supply models.
• Execution Strategies: Yield farming, leveraged staking, collateralized debt positions (CDPs).

Tokenized Assets & RWAs (Real-World Assets)

• Structure: Digital representations of real-world assets like treasuries, stocks, or commodities.
• Venues: Ondo Finance, Matrixdock, Maple Finance.
• Order Book: Varies; often traded over-the-counter (OTC) or through smart contract-based liquidity pools.
• Execution Strategies: Fixed-income strategies, arbitrage between on-chain and traditional markets.