How a centralised exchange works
A customer registers, passes identity checks and deposits funds by bank transfer, card or blockchain transfer. The exchange credits the deposit to the customer's account on its ledger and pools the assets in its own hot and cold wallets.
Orders go to a matching engine, and each trade moves balances between two accounts in the ledger within milliseconds, with no network fee. The blockchain is touched only on deposit and withdrawal.
What the operator of a centralised exchange answers for
- Safekeeping: the keys to every customer's assets
- Solvency: assets that match customer balances one for one
- Fair trading: published rules, and surveillance for manipulation
- Compliance: identity checks, transaction monitoring and Travel Rule data
- Availability: a platform that stays up when markets are busiest
Because the company sits in the middle, its failure is the customer's risk. That is why the rules for exchanges centre on custody and segregation, and why exchanges publish proof of reserves.
Why builders choose the centralised model
The centralised model is the one that connects to banks and cards, offers customer support and account recovery, and can be licensed. In the EU, the operator is a crypto-asset service provider under MiCA, authorised for each service it provides.
Centralised or decentralised exchange?
- Decentralised exchange (DEX)
- Smart contracts trade directly from users' own wallets, and every trade settles on the blockchain. No company holds the assets, and there is no account to open.
- Broker
- Takes customers' orders and executes them elsewhere. A broker has no order book of its own.
Where a centralised exchange shows up in a platform
Modules that do the work
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- Custody & walletsWallets on every major chain, with MPC custody from leading providers or your own keys.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- KYC / AMLIdentity checks, screening and ongoing monitoring, with the verification provider you choose.
Platforms that need it
Guides that go deeper
- What does it cost to launch a crypto exchange?Licensing, capital, technology, liquidity and people: where the money goes when you launch an exchange, and which of those costs depends on how you build.
- MiCA checklist: launching a crypto exchange in the EUWhat the EU's Markets in Crypto-Assets Regulation asks of an exchange: authorisation, capital, governance, client assets, the trading platform rules, and the laws that sit beside it.
- What a crypto exchange licence costs: fees and capital by regulatorThe application fee, the yearly fee and the capital a crypto exchange needs under MiCA, the FCA, VARA, ADGM and the DFSA, as each regulator publishes them, and when each falls due.
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.