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Pros and Cons of Enabling a P2P Crypto Exchange Feature as a Business

Pros and Cons of Enabling a P2P Crypto Exchange Feature as a Business

Among the various ways to buy and sell Bitcoin and crypto, the P2P method seems the safest compared to centralized exchanges, which never cease to fail their customers. For example, FTX, the well-known centralized finance filing for bankruptcy in 2022, shows us why such a system is not right for the crypto sector. Thus, decentralization is the best choice for exchanges and businesses approaching this technology.

Companies whose clients decide to buy Bitcoin P2P benefit from more revenue. At the same time, they’re less prone to hacks and fraud since there’s no third party in the process of buyers and sellers interacting for trading.

Users can decide on a specific token price before the transfer, which is an ingenious way of trading crypto tokens. Overall, P2P platforms have the best features for exchanging cryptocurrencies, but they might have some features that need improvement.

How do P2P crypto exchanges exactly work?

Crypto P2P methods allow buyers and sellers global access to digital assets without the involvement of third parties and their high fees. This technology leverages blockchains to enhance security and efficiency. Furthermore, they provide more control to the users over a centralized authority.

Compared to traditional exchanges, which are simple intermediaries and have numerous requirements like user registration, P2P exchanges have the advantage of allowing users to trade crypto as they like with no additional costs. The use of blockchain ensures the network is transparent, secure, and decentralized. Users simply need to generate or accept trading offers to initiate transactions. Furthermore, this system has an automated escrow through which coins stay secure until the agreement between both parties is complete.

P2P crypto exchanges are useable for different transactions, from trading, selling, and purchasing crypto. Some platforms also allow fiat-to-crypto transactions. Thus, anyone can buy or sell digital assets with traditional currency. Of course, advanced features of P2P exchanges are made for derivatives and margin trading, which require a better understanding of the value of underlying assets.

The benefits of P2P crypto exchanges

P2P trading is an excellent option for users who don’t want to deal with third parties or other institutions involved in their transactional processes. This is why decentralization is the best feature ―it’s adjacent to transparency, inflation immunity, security, and privacy, as well as financial inclusion.

Since there are no authorities handling the trading process, users will also benefit from zero transaction fees. While it is indeed true that sellers might have to pay a minimal charge for generating offers, the amount of it is insignificant, and it doesn’t affect the productivity of their transactions.

Moreover, P2P exchanges have no control over coin prices. This can only be discussed by the parties exchanging the asset. Traders can also find the best deals on the network since there are no limits or special requirements for sellers regarding the prices of their coins.

However, P2P exchanges have their disadvantages: they can be susceptible to a specific type of fraudulent behavior, which can be mitigated under one form or another. At the same time, limited market liquidity can affect trading speed and price stability. This feature is prevalent in centralized exchanges, where liquidity is plentiful.

What should a P2P crypto exchange have?

If a business decides to enable P2P crypto exchange features, it should consider adopting the following:

  • Support for an increased number of cryptocurrencies. While it’s paramount to have Bitcoin, Ethereum, and other leading coins, the success of a decentralized exchange stands in the varied amount of digital assets that allow investors and traders to diversify their portfolios;
  • Approach automated market makers (AMMs). This component is a necessary part of decentralized finance. Furthermore, it helps the ecosystem enable automated trading transactions through liquidity pools;
  • Offer liquidity pools. Enabling these smart contract piles of crypto leverages faster transactions. They also help users by providing yield farming, which is an essential feature of DeFi applications;
  • Enhance ad posting. Improve a P2P crypto exchange network through ads. Users can post-trade them and purchase cryptocurrencies with fiat money. This feature is necessary to appeal to an extended target audience in the crypto sector;

P2P crypto exchanges and the ongoing struggle to reach a legal landscape

Although they’re highly beneficial and safer than centralized exchanges, P2P systems have yet to become legalized and used officially. Many P2P exchanges recently ceased their activities as a consequence of competitive market conditions and the latest crypto winter. However, they all cited regulatory pressure from authorities.

It’s true that American institutions like the SEC have become more rigorous on the use of cryptocurrencies. This is why they’re delaying Bitcoin ETFs. At the same time, they’ve offered numerous declarations in which they state that regulatory charges will always follow cryptocurrency. Thus, if exchanges and institutions don’t abide by the latest rules, their activity will be banned from the country.

Businesses leveraging P2P crypto exchanges must be prepared to face challenges

Considering the difficulty of getting approved by authorities, the competition with centralized exchanges is hard to overthrow. At the same time, customers are looking for P2P alternatives that have similar features to P2P ones but lack the issue of institutions following their transactions.

So, they can do their best to adapt to regulatory frameworks, even if this means reaching a more centralized ecosystem. Of course, this sort of eliminated decentralization and therefore exposed the system to numerous risks. At the same time, companies wanting to approach the P2P feature for cryptocurrencies can try to establish some alternative ways of introducing that system. This way they can keep their customers and benefit from the high returns from P2P trading.

Final considerations

P2P crypto exchanges have numerous advantages for companies that want to adopt them. But, they’re also challenging to approach considering regulatory frameworks. Compared to centralized ones, these P2P systems are safer and more efficient. This drives many investors and traders to use this way of exchanging coins. However, businesses need to check off some requirements before adding an exchange to their operations.

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