Blockchain technology has given birth to a new financial asset class – cryptocurrency. The success of cryptocurrencies has, in turn, given rise to a market valued at over $2.5 trillion, which records daily trading volumes of billions of dollars. Cryptocurrency trading involves the exchange of one coin for another, mostly between stablecoins and regular crypto or crypto and fiat. Trading happens on cryptocurrency exchanges, which are platforms designed to support the easy sale of coins and tokens.
Trading on Algorand
Algorand is the world’s first green blockchain network, and apart from its native coin $ALGO, it supports the development of other tokens within the Algorand ecosystem. As the Algorand ecosystem broadens, developers will continue to develop projects, most of which will have their native coins of utility and value. For investors and crypto enthusiasts to interact with these new projects, they must find a way to buy their digital currencies on the Algorand network or bridge their existing cryptocurrencies to Algorand.
Either way, the exchanging of crypto is essential for any blockchain ecosystem to thrive; thus, exchanges are required to facilitate the smooth trading of crypto tokens within the Algorand network. To further understand how trading works within the Algorand environment, the detailed workings of cryptocurrency exchanges should be examined.
Unpacking Cryptocurrency Exchanges
All financial assets need a market – a platform that ensures liquidity, enabling users to move value from one product to another. A cryptocurrency exchange performs that duty in the blockchain world, allowing users to buy or sell their favourite cryptocurrencies with speed, precision and hitch-free transactions. By providing liquidity, exchanges help users move value from one coin to another, find a buyer to purchase their digital currencies or find a seller for them to make a purchase.
In the crypto space, two major kinds of exchanges exist:
● Centralised exchanges: These platforms are governed like a typical enterprise, and they are not usually hosted on the blockchain, although they interact with different blockchain networks daily. Interacting with a centralised exchange would require users to register an account, pass a KYC verification exercise and make a crypto or fiat deposit. Popular centralised exchanges include Binance, Coinbase and Kraken. ALGO is trading on Coinbase – users can buy or sell their ALGO on the platform.
● Decentralised exchanges: Less popular than centralised exchanges, these platforms are governed by smart contracts and usually feature an automated market maker that matches transactions with the best prices available. They are decentralised finance (DeFi) applications, which are either operated as a decentralised autonomous organisation (DAO) or are fully automatic. Decentralised exchanges are, however, beginning to get a look-in because of regulatory problems facing their counterparts. IDEX, Tinyman and ALGODEX are decentralised exchanges built to serve the Algorand ecosystem.
How to Trade on Algorand
With centralised exchanges, traders can buy or sell Algorand with fiat or existing cryptocurrencies. Users can also transfer their Algorand holdings on centralised exchanges to their wallet applications to enable them to interact with the network.
Algorand trading, within its ecosystem, is possible mainly on decentralised exchanges built on the blockchain. Algorand’s carbon-negative solution supports the onboarding of decentralised applications (DApps) and smart contracts that facilitate DeFi. These DeFi applications enable the trading of Algorand with Algorand Standard Assets (ASAs) in its ecosystem.
On a decentralised exchange, like IDEX or ALGODEX, users can exchange in seconds their $ALGO for stablecoins like Tether (USDT) or realioUSD or other tokens. Some exchange platforms, powered by Algorand Smart Contracts on Layer 1, have advanced tools like an order book and various orders. An order book gives the user access to the pending and completed orders on the particular cryptocurrency pair. Advanced instruments like limit orders and maker or taker orders and stop orders help traders buy or sell at desired prices.
Other decentralised exchanges offer direct token swaps, which traders can use to exchange a stablecoin, for instance, for $ALGO or to sell $ALGO to a stablecoin at market prices. Some platforms, powered by Algorand Smart Contracts, also offer margin trading, which traders can use to increase their position size by borrowing without deducting their trading capital. Leveraged trading is high risk and should not be undertaken by novices.
Algorand trading refers to buying or selling ALGO with other digital currencies or ASAs on centralised or decentralised exchanges. Learn more here.