DEX Series #2 - Trading and Exchange

DEX Series #2 - Trading and Exchange

Following the first 0xcert DEX Series post about assets, their determining tags and IDs, this article is dealing with transfer of assets, transactions and exchanges.


Ever since humanity started owning goods and assets, trading was involved. And while running on extremely sophisticated and advanced technologies, the concepts behind digital and crypto markets still boil down to the same principal trading relations as we have known since the beginning.

Transaction and exchange

Transaction

The basic trading mechanism is transaction, that is, a trade of an asset in return for a monetary medium. Once both parties doing a transaction agree upon the price of an asset, they conduct it by usually paying for the goods first and then transferring them.

The defining characteristic of a transaction is the involvement of a monetary medium which holds the same value for both parties. The price is usually determined either by market demand, internal conventions or mutual agreement.

Exchange

A more archaic trading mechanism is an exchange type of acquiring goods.

In contrary to a transaction, an exchange does not involve a monetary medium, as the goods are swapped one for one. In a barter system, the assets to be swapped are taken as holding both the same value. Even when exchanging several assets at a time, as a whole, each batch should still hold a single aggregate value equal or comparable to the value of the other batch of exchanged assets.

Upon agreement between both parties, they can execute an exchange of assets without involving any monetary medium.

The stability of the value of exchanged assets is, therefore, less reliable, as it depends on subjective estimates by the seller.


Transaction (asset for money) vs. exchange (asset for asset)

Trading Platforms and Marketplaces

As the needs for trading grew, so did the markets evolve and started offering platforms for people to trade their assets.

Centralized Transactions

Following the traditional brick and mortar marketplaces, the emergence of stock exchanges brought new dimensions to trading, allowing people to acquire securities or stocks of business entities. Such centralized platforms provide a secure spot for executing a trade, mostly transactions, regulated by internal rules and national laws.

The Internet revolution brought about a more peer-to-peer approach to many fields, trading included. Still, peers usually continue communicating through a centralized entity or a middleman. eBay is a classic example of a centralized platform for C2C transactions that started off as an auction marketplace, mostly attracting collectors. In order to ensure a safe and trusted experience for both parties involved in a transaction, a set of Terms and Conditions is usually applied to such platforms.

The same goes for centralized digital asset exchanges, such as Binance or OKEx, where the user does not have complete control over their funds. Instead, those are stored in exchange's internal wallets and on their servers, as a kind of trust feature in return for the ability to trade the funds on a highly liquid platform.


Evolution of platforms for centralized transactions

Decentralized Marketplaces

Not only crypto assets, but physical assets and their owners too are experiencing a shift in the way trading has been done.

Blockchain technology is replacing the need for intervention of a middleman or an organization, by securing transactions on the ledger and allowing for a true peer-to-peer trade or exchange of assets.

Targeting the same audience as eBay, decentralized marketplaces such as BitBay and SysCoin's BlockMarket bring a more direct and autonomous way of trading, with two-sided transactions on the blockchain providing the trust mechanism similar to Terms & Conditions on centralized platforms.

In terms of crypto asset trading, the focus is clearly shifting towards decentralized ways of transaction and exchange. Aforementioned Binance is on a quest to present their decentralized cryptocurrency exchange or dex soon. NFTs are also seeing the emergence of decentralized marketplaces like OpenSea that allow browsing through several types of non-fungible assets and eliminate the reliance on management by a parent organization.

Trading of digital assets has mostly been of transacting nature, selling a token for a specific sum of monetary value. Recently, however, exchanging or swapping one crypto asset for another – mostly the NFTs – has started to appeal a lot more to a certain audience, especially the collector type of traders.

The concept of decentralization of trade is increasingly appealing to the end users, mostly due to incentives of usage fees reduction, autonomous ownership of data, and complete control over their assets, all of which is difficult to expect from a centralized platform.

We will discuss the pros and cons, structures, and comparisons between centralized and decentralized exchanges in the following posts.

Back to Basics

The first ever trading of goods started as a barter type, asset-for-asset exchange, and by implementing a monetary medium, such exchanges turned into transactions. Through the development of cultural and economic systems, complex ways of trading have evolved and defined the way we are transferring goods from one hand to another.

Today, the technologically sophisticated and culturally disruptive blockchain tech is bringing solutions for the trade to come down to basics again. For both currencies and physical assets, for either coins or NFTs – secure and straightforward one-on-one transactions and exchanges without the middleman are back. But this time, the reach and scope of this primitive concept of trade are incomparably larger.


Trading the NFTs is great, but how about swapping them? We're soon launching the decentralized SwapMarket exchange for NFTs. See it for yourself at the SwapMarket.com.


For more on the topic of a decentralized way of trading assets, please check our other episodes of the DEX Series:

DEX Series #1: Tags and IDs
DEX Series #3: Governance and control distribution of exchanges
DEX Series #4: Centralized vs. decentralized exchange
DEX Series #5: Academia
DEX Series #6: Crypto-collectibles

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