Problems with centralized exchanges

1. Security

An immediate disadvantage when using a centralized exchange is the security risks arising from the centralization of funds. As all funds sent in by users for trading are stored and secured by the exchange, the funds are prone to a single point of failure. For example, the exchange servers could be breached by attackers, or the exchange’s wallet private keys could be lost, resulting in a loss of funds.

These failures are completely out of the control of the individual user, regardless of how secure their passwords are, and they have to trust that the centralized exchange have done what is necessary to secure their funds. There have been major breaches of users’ trust, evidenced in past exchange hacks which have amounted to billions of dollars in value lost over the last few years. A prime example of this would be the USD 500 million lost in the recent Coincheck breach.

Decentralized exchanges solve this problem by letting the blockchain and the user handle the security of funds from start to end. A DEX is therefore as secure as its smart contract, and most existing DEXs have been running for a long time with no core breaches (e.g. EtherDelta).

2. Control of funds

When users deposit their funds into a centralized exchange, their funds are under the control of the exchange. The exchange has the private keys of the wallets. The exchange may be able to withhold funds from users or remove funds from users’ accounts at any time. In general, a user has to trust that a centralized exchange will always act in good faith for the user. This is in contrast to cryptocurrency’s spirit of decentralization and trustlessness.

When trading on DEXs, the user is in control of his wallet’s private key.

3. Ease of Transfer

Users may also be unable to withdraw assets in small numbers from centralized exchanges, or it may not be viable to withdraw often due to high withdrawal fees. Furthermore, a high number of confirmations are typically required when depositing funds. These issues make trading on centralized exchange a hassle.

These problems are solved when trading on DEXs because users can buy or sell tokens directly from their wallet, without additional transfers.

4. Immediate Listing

A big issue with the acquisition of tokens of an early stage blockchain startup is finding exchanges that list the wanted tokens. On the other hand, users who have purchased tokens during an Initial Coin Offering (ICO) also have to wait for the token to be listed on an exchange before being able to sell it. This leaves many users stuck with the token even though they may no longer want it. With the increasing popularity of projects developed on the NEO Blockchain, Switcheo will strategically start trading NEP-5 Token contracts for the NEO Blockchain first, before moving on to QRC20 Tokens (QTUM). Using the dynamic call functionality of the NEO blockchain, users will be able to list and buy tokens the moment they are available for transfer on the blockchain.

5. Exchange Fees

While centralized exchanges like Binance and Gate.io charge exorbitant rates for withdrawals for small amounts of cryptocurrencies, there will be no withdrawal fee for Switcheo’s smart contract. Users will only pay the standard network fees, and not be charged additional amounts should they decide to withdraw their balance. The maker and taker fee for Switcheo is capped at 0.5%, and is guaranteed by the smart contract.

Problems with existing DEXs

While a DEX has clear advantages over a centralized exchange in the security & control of funds, ease of transfer, immediate token listing, and lower fees, Switcheo’s true priority is to overcome the shortfalls of existing DEXs:

User Experience (almost identical to traditional exchanges that users are comfortable with)

Smart Contract Security (bug bounty campaign and external audits)

KYC/AML Requirements (implementation of D-KYC whitelists so that users can trade in compliance with the relevant legislations)

Low Exchange Volume (they plan on overcoming this with state-of-the-art ease-of-use platform, such that using Switcheo’s user experience is preferred even to popular centralized exchanges)

Public Sale and Listing

They just finished the public sale on the 17th of March after a first round sale started on the 16th of March where participants had their spot reserved for 24 hours.

Listing of the SWH token is planned for the upcoming days. Tokens will be listed on the Switcheo’s Exchange as a base pair while trading on the Switcheo DEX.

Roger Lim (advisor) — one of the most significant advisors and investors out of China. He is a partner of NEO Global Capital, an investment fund strategically affiliated with NEO.

Ivan Poon (blockchain developer) — he’s the leader of the four people team. Has quite an impressive experience as developer and entrepreneur.

Q1 2018 — Launch of Switcheo DEX for NEO, GAS & NEP-5

Q2 2018 — Launch of QRC20 trading

Q3 2018 — Launch of ERC20 trading

Q4 2018 — Cross-swap feature using SWH and Wanchain

2019 — Launch of trading for top 5 chains

Useful Links

Exchange Website, Whitepaper, Twitter, Blog, Telegram,

Resources used for writing this article

Switcheo Network’s Whitepaper