shamusnoonanDefi demystified: a beginners guide to yield farming
Disclaimer: nothing in this article constitutes professional and/or financial advice. This is a guideline and framework for Defi and yield farming. Do your own research! Maybe you or someone you know has been bitten by the Defi bug.Defi, short for decentralized finance, is a blockchain-based form of finance, which does not rely on centralized financial intermediaries and is completely permissionless. Through Defi, users can lend out cryptocurrency, like a traditional bank would, and earn inte...
shamusnoonanDecentralized exchanges: the farmers market for trading
In a previous post, I wrote about how Centralized Exchanges (CEX’s) handle over 98% of all crypto transactions due to their user-friendly platforms. However, the rise of peer-to-peer trading has risen over 10,000% in the past 12 months due to new advancements in Decentralized Exchanges. In this guide, I’ll explain what Decentralized Exchanges are and how they work, helpful tips to know before using them, and why it’s critical to unlocking new value in the Defi ecosystem.Photo credit: Yield.ap...
shamusnoonanDefi demystified: a beginners guide to yield farming
Disclaimer: nothing in this article constitutes professional and/or financial advice. This is a guideline and framework for Defi and yield farming. Do your own research! Maybe you or someone you know has been bitten by the Defi bug.Defi, short for decentralized finance, is a blockchain-based form of finance, which does not rely on centralized financial intermediaries and is completely permissionless. Through Defi, users can lend out cryptocurrency, like a traditional bank would, and earn inte...
shamusnoonanDecentralized exchanges: the farmers market for trading
In a previous post, I wrote about how Centralized Exchanges (CEX’s) handle over 98% of all crypto transactions due to their user-friendly platforms. However, the rise of peer-to-peer trading has risen over 10,000% in the past 12 months due to new advancements in Decentralized Exchanges. In this guide, I’ll explain what Decentralized Exchanges are and how they work, helpful tips to know before using them, and why it’s critical to unlocking new value in the Defi ecosystem.Photo credit: Yield.ap...
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It feels like every time I login to Coinbase, I see a “New on Coinbase” notification and it got me wondering: how do new coins get listed on exchanges? Coinbase is one of many Centralized Exchanges, or an exchange that is controlled by a third party to help conduct transactions. These centralized exchanges, also called CEX’s, account for over 98% of all cryptocurrency transactions globally, acting as a gatekeeper for onboarding users into the world of cryptocurrency trading.
In this guide, I’ll break down how centralized exchanges work, how new tokens are listed, and the power centralized exchanges have over the crypto trading markets.
Centralized Exchanges (CEX’s) are platforms which help facilitate the buying and selling of digital assets. You can swap fiat (USD) for cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), as well as swapping digital assets like BTC for ETH. The CEX acts as an intermediary, matching buyers with sellers, while maintaining an order book.
For example, let’s say I want to swap $500 of USD into BTC. In order to do this, the CEX needs sufficient liquidity for this pair (USD/BTC) to fulfill this spot order. In most cases, the CEX will match me, the buyer, with a seller, to facilitate this transaction (USD -> BTC), so both parties fulfil their order. If there is not a BTC seller, the exchange has to come up with the liquidity, in this case, $500 worth of BTC, to swap and execute this trade. Each CEX offers different assets you can purchase depending on a variety of factors. Binance, for example, supports over 185 tokens on their platform, while Coinbase offers over 100. Each CEX has to meet an internal threshold to make sure they have the liquidity needed in each pair to fulfill the order.
It feels like every time I login to Coinbase, I see a “New on Coinbase” notification and it got me wondering: how do new coins get listed on exchanges? Coinbase is one of many Centralized Exchanges, or an exchange that is controlled by a third party to help conduct transactions. These centralized exchanges, also called CEX’s, account for over 98% of all cryptocurrency transactions globally, acting as a gatekeeper for onboarding users into the world of cryptocurrency trading.
In this guide, I’ll break down how centralized exchanges work, how new tokens are listed, and the power centralized exchanges have over the crypto trading markets.
Centralized Exchanges (CEX’s) are platforms which help facilitate the buying and selling of digital assets. You can swap fiat (USD) for cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), as well as swapping digital assets like BTC for ETH. The CEX acts as an intermediary, matching buyers with sellers, while maintaining an order book.
For example, let’s say I want to swap $500 of USD into BTC. In order to do this, the CEX needs sufficient liquidity for this pair (USD/BTC) to fulfill this spot order. In most cases, the CEX will match me, the buyer, with a seller, to facilitate this transaction (USD -> BTC), so both parties fulfil their order. If there is not a BTC seller, the exchange has to come up with the liquidity, in this case, $500 worth of BTC, to swap and execute this trade. Each CEX offers different assets you can purchase depending on a variety of factors. Binance, for example, supports over 185 tokens on their platform, while Coinbase offers over 100. Each CEX has to meet an internal threshold to make sure they have the liquidity needed in each pair to fulfill the order.
CEX’s make a majority of their revenue off fees from each trade (varies from %0.05 to 3% per trade), so their goal is to facilitate as many transactions as possible. In order to do so, they attract new users by listing assets that they want to purchase. There are thousands of cryptocurrency tokens out there, so each CEX is responsible for adding tokens onto their platform to meet the needs of new and existing customer demands. Similar to a scoreboard, CEX’s are ranked in order based on their traffic, liquidity, trading volume, and overall confidence score of the trading community. The more liquidity and volume they have, the more legitimate it seems (smart investors follow the money), which therefore helps them capture more of the market due to investor confidence.
Top 10 Global CEX’s (via Coinmarketcap)
Now that you understand the motivations for CEX’s to drive a volume of trades, it’s important to understand how they go about adding new coins to their platform to drive this growth.
Inbound interest:
Let’s say I decide to launch my own cryptocurrency called Shamus Coin ($SHAMUS), which is a leprechaun protocol used to help facilitate pot of gold mining on the Ethereum Network (ERC-20 Network). I want to allow the community I’ve built online to purchase $SHAMUS coins and the easiest way to do this is to get listed on a major CEX. In order to do so, I’m going to have to reach out to a CEX to inquire about getting listed on their exchange.
Most CEX’s have an asset listing page where they allow new protocols to submit an application to be listed on their exchange (for instance, here is Coinbase’s Asset Hub page). Requirements for most CEX’s include documentation like: a whitepaper, technical docs, market supply of the token, market demand, network you intend to launch on, and so on. In this case, I would submit all of my $SHAMUS documentation to the CEX team and wait to hear back from them (if I meet all of their requirements). Since each CEX is different, I may reach out to 2-5 different platforms knowing that I may not meet the requirements for all of them.
Customer requests/outbound:
On the flip side, most CEX’s have a Business Development team that is in charge of new coin listings. This team is in charge of understanding customer needs and what coins customers want to trade. Let’s say $SHAMUS was recently featured on CNBC and customers have expressed interest in wanting to buy this coin, but it’s not listed on their platform. The Business Development team can take the initiative and reach out to me to get more information about listing my project and see if we meet their requirements to get listed.
Incentives
Incentive for protocols to list their coins on a CEX: exposure to millions of new buyers that can invest in their coin and grow their market cap (as well as branding)
Incentive for CEX to list new coins: attract new customers that want to purchase that token as well as increase volume for existing customers (the more trades on their platform = more fees = more revenue)
** (Unofficial) Listing Requirements:**
As noted above, listings can be expensive. Some CEX’s do not publicly list fees and they will reach out to you about their requirements, based on a variety of factors (the network your deploying on, pairs offered, etc.). There’s a bit of art + science behind the listing requirements, and it’s a bit of a gamble by the CEX when they list new coins. They need to ensure there is sufficient liquidity once trading is activated, and they cannot afford to lose their own reserves from other pairs, so they often will come up with a formula that will allow them to offer these new coins to start for a period of time without having to give up any of their own liquidity (hence why it’s so expensive and costly to get listed on a CEX). The theory and hope is that there will be enough supply and demand for this asset that the market will naturally fill the order book of buy/sell orders, and it does not have to be subsidized by the CEX.
OK, let’s say I am able to put up the proper collateral needed and want to move forward- the next step is finalizing the contract, which may or may not include clauses for certain requirements to remain listed on their platform. Once the contract is approved and signed by both parties, the CEX will then reach out to indicate a launch date for when the token will be listed (in this case, $SHAMUS coin!) It will likely be paired with a blue chip crypto coin (ie. SHAMUS/ETH pair) or a stable coin ($SHAMUS/USDC), which is generally the most common pair for a new asset. Most projects will coordinate a PR announcement at the same time of the new asset listing due to the influx of new capital coming in and the inherit (i.e. “Coinbase pump”)
While every new coin has good intentions, some projects fail to gain the traction necessary to grow or are no longer able to meet the CEX’s requirements for an active listing. In this case, a token may be subject to a delisting, or the removal of the token and the asset pairing, which can be voluntary or involuntary. Delisting reasons includes:
Low volume/liquidity
Regulatory uncertainty
Not adhering to listing requirements
Hacks, bugs or security breaches
Just as CEX’s help open a whole new market for investors to buy a token and increase their market cap, it can instantly be taken away if they are delisted. Delisting (especially from large CEX’s) significantly affects the price due to low liquidity and volume as well as a loss of general credibility within the community and markets. One of the biggest examples of this was when Coinbase suspended XRP (at the time, it was the 3rd biggest cryptocurrency by market cap) trading in December of 2020, based on a pending lawsuit from the SEC. The price of XRP proceeded to drop more than 50% in the following 7 days.
According to the US Government, cryptocurrency is not legal tender and therefore not backed by the government. Therefore, CEX’s are not FDIC insured and not subject to holding any amount of reserves to back up the balance in your account. Coinbase, which is the only publicly traded Centralized Exchange in the United States, does offer crime insurance which protects a portion of digital assets held across their storage systems against losses from theft, but doesn’t cover any losses from unauthorized access to your account. As a consumer, you’re putting a lot of trust into these CEX’s you choose to trade on, as you don’t have any guarantee or security if you’re not able to withdraw all of your assets or someone hacks your account and steals your funds.
As noted above, over 98% of all cryptocurrency transactions in the world occur on CEX’s, so it’s important to understand their motivations and how they operate. They are in charge of deciding which tokens they will list on their platform, but that doesn’t necessarily mean they are safe investments. It’s important to always do your own research and do not rely solely on a new asset that is listed as due diligence.
When deciding on which CEX to use, it’s important to look into liquidity pairs, security, and most importantly, read the fine print about CEX’s privacy policies, security and terms of use! It’s on you as a buyer to understand the risks involved, as well as local laws and tax implications you may be subject to.
I hope this helps you get a better understanding of the framework behind CEX’s and how they work to better position yourself for any cryptocurrency investments.
Happy trading!
P.S. - have thoughts or questions? DM me on Twitter (@shamu5noonan)!
CEX’s make a majority of their revenue off fees from each trade (varies from %0.05 to 3% per trade), so their goal is to facilitate as many transactions as possible. In order to do so, they attract new users by listing assets that they want to purchase. There are thousands of cryptocurrency tokens out there, so each CEX is responsible for adding tokens onto their platform to meet the needs of new and existing customer demands. Similar to a scoreboard, CEX’s are ranked in order based on their traffic, liquidity, trading volume, and overall confidence score of the trading community. The more liquidity and volume they have, the more legitimate it seems (smart investors follow the money), which therefore helps them capture more of the market due to investor confidence.
Top 10 Global CEX’s (via Coinmarketcap)
Now that you understand the motivations for CEX’s to drive a volume of trades, it’s important to understand how they go about adding new coins to their platform to drive this growth.
Inbound interest:
Let’s say I decide to launch my own cryptocurrency called Shamus Coin ($SHAMUS), which is a leprechaun protocol used to help facilitate pot of gold mining on the Ethereum Network (ERC-20 Network). I want to allow the community I’ve built online to purchase $SHAMUS coins and the easiest way to do this is to get listed on a major CEX. In order to do so, I’m going to have to reach out to a CEX to inquire about getting listed on their exchange.
Most CEX’s have an asset listing page where they allow new protocols to submit an application to be listed on their exchange (for instance, here is Coinbase’s Asset Hub page). Requirements for most CEX’s include documentation like: a whitepaper, technical docs, market supply of the token, market demand, network you intend to launch on, and so on. In this case, I would submit all of my $SHAMUS documentation to the CEX team and wait to hear back from them (if I meet all of their requirements). Since each CEX is different, I may reach out to 2-5 different platforms knowing that I may not meet the requirements for all of them.
Customer requests/outbound:
On the flip side, most CEX’s have a Business Development team that is in charge of new coin listings. This team is in charge of understanding customer needs and what coins customers want to trade. Let’s say $SHAMUS was recently featured on CNBC and customers have expressed interest in wanting to buy this coin, but it’s not listed on their platform. The Business Development team can take the initiative and reach out to me to get more information about listing my project and see if we meet their requirements to get listed.
Incentives
Incentive for protocols to list their coins on a CEX: exposure to millions of new buyers that can invest in their coin and grow their market cap (as well as branding)
Incentive for CEX to list new coins: attract new customers that want to purchase that token as well as increase volume for existing customers (the more trades on their platform = more fees = more revenue)
** (Unofficial) Listing Requirements:**
As noted above, listings can be expensive. Some CEX’s do not publicly list fees and they will reach out to you about their requirements, based on a variety of factors (the network your deploying on, pairs offered, etc.). There’s a bit of art + science behind the listing requirements, and it’s a bit of a gamble by the CEX when they list new coins. They need to ensure there is sufficient liquidity once trading is activated, and they cannot afford to lose their own reserves from other pairs, so they often will come up with a formula that will allow them to offer these new coins to start for a period of time without having to give up any of their own liquidity (hence why it’s so expensive and costly to get listed on a CEX). The theory and hope is that there will be enough supply and demand for this asset that the market will naturally fill the order book of buy/sell orders, and it does not have to be subsidized by the CEX.
OK, let’s say I am able to put up the proper collateral needed and want to move forward- the next step is finalizing the contract, which may or may not include clauses for certain requirements to remain listed on their platform. Once the contract is approved and signed by both parties, the CEX will then reach out to indicate a launch date for when the token will be listed (in this case, $SHAMUS coin!) It will likely be paired with a blue chip crypto coin (ie. SHAMUS/ETH pair) or a stable coin ($SHAMUS/USDC), which is generally the most common pair for a new asset. Most projects will coordinate a PR announcement at the same time of the new asset listing due to the influx of new capital coming in and the inherit (i.e. “Coinbase pump”)
While every new coin has good intentions, some projects fail to gain the traction necessary to grow or are no longer able to meet the CEX’s requirements for an active listing. In this case, a token may be subject to a delisting, or the removal of the token and the asset pairing, which can be voluntary or involuntary. Delisting reasons includes:
Low volume/liquidity
Regulatory uncertainty
Not adhering to listing requirements
Hacks, bugs or security breaches
Just as CEX’s help open a whole new market for investors to buy a token and increase their market cap, it can instantly be taken away if they are delisted. Delisting (especially from large CEX’s) significantly affects the price due to low liquidity and volume as well as a loss of general credibility within the community and markets. One of the biggest examples of this was when Coinbase suspended XRP (at the time, it was the 3rd biggest cryptocurrency by market cap) trading in December of 2020, based on a pending lawsuit from the SEC. The price of XRP proceeded to drop more than 50% in the following 7 days.
According to the US Government, cryptocurrency is not legal tender and therefore not backed by the government. Therefore, CEX’s are not FDIC insured and not subject to holding any amount of reserves to back up the balance in your account. Coinbase, which is the only publicly traded Centralized Exchange in the United States, does offer crime insurance which protects a portion of digital assets held across their storage systems against losses from theft, but doesn’t cover any losses from unauthorized access to your account. As a consumer, you’re putting a lot of trust into these CEX’s you choose to trade on, as you don’t have any guarantee or security if you’re not able to withdraw all of your assets or someone hacks your account and steals your funds.
As noted above, over 98% of all cryptocurrency transactions in the world occur on CEX’s, so it’s important to understand their motivations and how they operate. They are in charge of deciding which tokens they will list on their platform, but that doesn’t necessarily mean they are safe investments. It’s important to always do your own research and do not rely solely on a new asset that is listed as due diligence.
When deciding on which CEX to use, it’s important to look into liquidity pairs, security, and most importantly, read the fine print about CEX’s privacy policies, security and terms of use! It’s on you as a buyer to understand the risks involved, as well as local laws and tax implications you may be subject to.
I hope this helps you get a better understanding of the framework behind CEX’s and how they work to better position yourself for any cryptocurrency investments.
Happy trading!
P.S. - have thoughts or questions? DM me on Twitter (@shamu5noonan)!
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