Crypto Exchanges & Their Governance Models
Governance models for crypto exchanges vary between “centralized” exchanges and “decentralized” exchanges, but also among individual CEXes and DEXes.
You should be aware of crypto exchanges if you have any involvement in the cryptocurrency industry, as they serve as crucial trading platforms for digital assets.
However, not all cryptocurrency exchanges are made equal, especially when comparing a controlled exchange (CEX) like Binance to a decentralized exchange (DEX) like PancakeSwap. The governing structure of a CEX and a DEX is one of their main distinctions.
A firm or other entity controls a CEX, but a DEX has a decentralized power structure. Hybrid Exchanges (HEXes), like Bitfloor and Poloniex, also exhibit features of both sexes and DEXes.
Similar to conventional stock exchange markets, CEXes are designed to be controlled by a single central authority. Top operational choices are made by their administrators. These platforms typically use order books to handle the transfer of assets. They also make up the majority of exchanges in the cryptocurrency industry. The most well-known ones include KuCoin, Binance, Coinbase, FTX, Huobi, and Binance.
On the other side, DEXes are made to let users impact essential governance procedures. Users are only permitted to vote on some exchanges if they own a certain number of native tokens. Decentralization of power is a fundamental concept of the cryptocurrency movement, and DEXes tend to have more democratic and dynamic governance than CEXes.
Of course, different DEXes and CEXes have various governance structures.
Let’s look at some of the largest crypto exchanges:
With a 24-hour trading volume of more than $15 billion, Binance is the largest cryptocurrency exchange in terms of volume. A group of executives manages this centralized crypto exchange. Changpeng Zhao, co-founder, and CEO of Binance, serves as the head of the executive team (CZ).
All managerial responsibilities necessary to run the business, including creating and implementing policies, are under the purview of executive leadership. The exchange’s users are then informed of these top-down decisions through events, speeches, news releases, etc.
A South Korean cryptocurrency exchange called Upbit was established in 2017. The business is likewise a CEX, but unlike Binance, it is managed differently because Upbit is a branch of the South Korean fintech firm Dunamu.
Are your funds safe with CEX?
Hackers have also targeted CEXs. One well-known example is Mt. Gox, a centralized Japanese exchange that processes more than 70% of all Bitcoin transactions globally. Following the theft of about 850,000 bitcoins, the deal stopped all trading and shut down its website and exchange services.
Upbit, two investment exchange platforms, and an equities management platform are among the four subsidiaries of Dunamu. Korea, Indonesia, Thailand, and Singapore all provide the exchange.
The exchange has some CEOs, and each CEO is in charge of a startup in a different nation. The management of the exchange’s parent company Dunamu is their ultimate authority. Only CEO Alex Kim is in order of the subsidiaries in Singapore and Indonesia. The following are the positions played by these executive leaders:
Upbit Thailand CEO- Peeradej Tanruangporn
Upbit Singapore/APAC CEO- Alex Kim
Korea and Dunamu CEO- Sirgo Lee
The dominating DEX on BNB Chain is PancakeSwap. Any CAKE holder is eligible to take part in the governance of this community-based cryptocurrency exchange.
A CAKE holder submits a proposal as part of the governance process. The idea becomes a core proposal if it receives a large amount of community support. The main idea is then put to the vote among CAKE members, and if approved, it is put into effect.
On chains like Polygon, Ethereum, and others, Uniswap is a top DEX. The native UNI coin of this platform powers a decentralized governance mechanism. Additionally, it includes an easy-to-use decentralized governance structure. The venue posted the following fundamental guidelines when UNI became operational in September 2020.
Users have full custody of their assets on DEX. However, with control comes the duty to handle private keys with care. If the private keys are stolen or lost, the user will no longer be able to access their money. No one can assist a user in restoring their funds if they lose access to their private keys because DEX has no central authority.
To make a governance proposal, a user must have at least 1% of the total supply of UNI (delegated).
To endorse a proposal from the community, 4% of the entire supply of UNI must be used, as tokens are used in voting.
There is a mandatory 7-day voting period.
The execution of the proposal is subject to a two-day time lock delay.
The PancakeSwap Decentralized Exchange (DEX) is a platform built on the BNB Chain. It provides users with some services, including liquidity pools, swapping, yield farming, syrup pooling, an automated market maker, initial farm offerings (IFO), an NFT profile system, and many more.
The protocol also enables users to trade, profit from yield farming, and win prizes through lotteries, predictions, and NFT collectibles to get the most out of their crypto assets. PancakeSwap is the top DEX on the BNB Chain because of its market-leading trade volumes.
However, a Chainalysis report shows that DeFi protocols are currently the primary target of the great majority of hackers. However, platforms like Voyager and Vauld still had to halt withdrawals and deposits, and they also had to declare bankruptcy in 2022. These platforms’ users can no longer access their money.
We are all looking forward to the time when choosing between CEXs and DEXs won’t be as difficult. In a perfect world, both decisions would be wise ones.