Back to the list

How P2P Exchanges Reduce Fees and Increase Market Access

3 h

P2P exchanges have emerged in the ever-evolving world of cryptocurrencies, providing customers seeking an alternative to traditional centralized exchanges with a viable solution. Conventional exchanges connect users who wish to trade cryptocurrencies, but in the process, funds are transferred to a third party. However, this new world of altcoins offers two major advantages for users who opt for P2P exchanges: lower fees and greater market access.

In the article to be covered next, we will see how the trading process in the P2P system works, have an in-depth look at centralized exchanges, provide examples of how the process works, and conclude with best practices to follow for a safe and fruitful experience.

Everything You Need to Know About P2P Exchanges

As for centralized exchanges, commissions are composed of a series of fees, including trade fees (0.1%-0.5%), withdrawal fees, deposit fees, and, in certain instances, idle fees.

There are no fees in P2P exchanges because they are peer-to-peer. This is because buyers and sellers in peer-to-peer exchange interact with each other.

The savings are from:

There are no middle management fees — the platform skips the costs that come with maintaining a very complex structure. It does not need to hold money and also avoids the costly compliance requirements.
Competitive pricing — sellers often offer attractive packages that rival those provided by fixed exchange rates.
Flexible payment terms — customers can fully benefit from low-cost payment services, like wire bank transfers, mobile money, and even cash, instead of using expensive bank transfers.

What Makes P2P Exchanges Different from Centralized Trading Platforms

Exchanges that belong to a larger network, called peer-to-peer exchanges, remain a distinct phenomenon in the crypto-exchange community, giving users much more control and flexibility than those in other sectors.

This is not something users of centralized exchanges (CEX) can experience. The reasons users of CEX are turning to P2P exchanges are explained below.

Direct user-to-user trading without intermediaries

Removing any intermediaries is what peer-to-peer crypto exchange transactions are all about. With an intermediary, there would be a platform that connects buyers to sellers and handles all transactions because it holds all the money. P2P revolutionizes all of this by connecting you directly with another person in their marketplace.

Pricing flexibility and user-defined trade terms

The central exchanges set fiat prices based on order books. The fees are in accordance with maker/taker fees. The conditions in P2P systems include aspects like volumes, time, or even pool assets, such as properties. Lastly, market-driven pricing aligns with prevailing market conditions.

Access to local and alternative payment methods

The central exchanges set fiat prices based on order books. The fees are in accordance with maker/taker fees.

The conditions in peer-to-peer crypto exchange systems include factors such as volumes, time, and even pool assets, such as properties. Lastly, market-driven pricing aligns with prevailing market conditions.

Fee structures compared to centralized exchanges

P2P really disrupts the commission system. CEXs charge them: trading commissions of 0.1% to 0.5%, plus withdrawal fees (Bitcoin withdrawal fees range from $10 to $50), markups on deposits, and spreads of up to 1%.

P2P keeps it simple: many charge 0% to makers (those who place ads) and 0.5-1% to takers, or nothing at all, except for optional escrow (0.1-0.5%).

How P2P Exchanges Significantly Reduce Trading Fees

With no unnecessary fees or commissions and transparent, direct exchanges between participants (P2P), it is a financially compelling alternative to traditional centralized platforms. As a result, for many customers, trading cryptocurrencies is significantly cheaper than on standard centralized systems.

Eliminating broker and custodial fees

P2P exchanges never hold funds during trading. The escrow temporarily holds the cryptocurrency until payment is approved. Fiat money is transferred directly between users’ individual accounts. Most top P2P platforms do not charge buyers and rarely charge sellers.

Peer-to-peer negotiation for better rates

Vendors may also offer buyers competing exchange rates for buying cryptocurrency, often near or even lower than the current international exchange rate, if the payment terms are favorable to them. This implies that the buyer will incur lower charges than on a centralized exchange rate platform.

No hidden charges: transparent trading costs

Transparency is highly valued within P2P lending markets. The commissions are clearly laid out in advance in the seller’s offer, including any overcharge or undercharge relative to the market price. Further, there are no sharp limits on withdrawals, multi-level commissions, or commissions for completed transactions.

Lower infrastructure and operational costs

Peer-to-peer platforms can be considered mere marketplaces and thus not full-fledged stock exchanges. This implies that the operational costs incurred by peer-to-peer platforms remain significantly lower, as transactions occur directly between users on the same platform. Thus, the peer-to-peer platforms can afford to earn revenue with zero or lower transaction commissions.

P2P Exchanges vs. Decentralized Exchanges (DEX)

Although P2P exchanges and DEXs aim to minimize reliance on third-party involvement, they serve different purposes and operate in distinct ways. An in-depth understanding of their differences will enable the trader to choose the appropriate one based on their needs.

Core Trading Model

P2P exchanges are websites that enable direct trading between buyers and sellers. In most cases, one party sells cryptocurrencies for fiat using an off-chain payment method. Sometimes transactions are manual or semi-manual, and users negotiate the conditions.
DEXs are automated market makers or order-book protocols on the chain, such as Uniswap, PancakeSwap, dYdX, and GMX. In this case, a trader connects his wallet and swaps one cryptocurrency for another using smart contracts.

Fiat On/Off-Ramps

P2P Exchanges: Extensive support for multiple fiat currencies and payment options. P2P Exchanges have therefore emerged as the primary point of access for people in regions and countries without banking infrastructure.
DEX: Highly restrictive direct support for fiat currencies. One must already hold cryptocurrency, such as USDT or USDC, to conduct trades.

Fees and Cost Structure

P2P exchanges: The PTR fee is usually 0%. This “fee” comes in the way of a markup or a discount on the selling price set by the seller (0-10%, depending on a particular type of payment and location)
DEX: Gas/network fees + protocol fees + possibility of slippage for large transactions. Among these, gas fees, particularly on congested chains such as Ethereum, can make small transactions expensive, but this is compensated for by layer 2 technology.

Common Pitfalls in P2P Exchanges and How to Avoid Them

Although P2P exchanges tend to be more competitive and flexible, they also require users to deal with strangers. Understanding the typical pitfalls of p2p crypto exchange development services and adhering to proven strategies can substantially reduce the risk of loss and help you trade with greater confidence.

Falling victim to scams and fraudulent offers

The most common risk in P2P trading is fraud, which can take the form of requesting screenshots of payments, hijacking bank accounts, making false claims about fund transfers, or even returning funds after cryptocurrency has been released from escrow.

How to avoid it:

Giving preference to traders with extensive experience will involve analyzing traders who have executed hundreds or thousands of trades with positive feedback ratings of 95% or above.
You must consider the same amount in person, whether it was transferred to your escrow account; mere notifications on your apps are not enough.

Misunderstanding or ignoring trade terms

Every offer made on the P2P platform has certain rules that the seller must abide by, such as payment terms, verification requirements, and timelines. Failure to adhere to the rules has been one of the reasons for disputes.

How to avoid it:

The conditions of the offer should be thoroughly read twice before finally clicking on the ‘Trade’ option.
The codes can be copied and pasted as instructed.
The platform’s chat function should be used to verify information, correct inaccuracies, and save all messages within the app.

Using risky or reversible payment methods

Some payment systems allow the paying individual to revoke the payment even weeks after it has taken place. Those merchants who would use the payment system without the appropriate mindset would end up losing their cryptocurrency.

How to avoid it:

As a merchant, you could check whether there are suggested or secure payment services in your area and use them.
For payment purposes, local bank wire transfers, cash deposits, or mobile money transfers are preferred, as they cannot be canceled once approved by the banks.
As a buyer, you can find out which alternative the reputable suppliers consider their best, thereby boosting your chances of getting a fair rate.

Poor timing and price volatility exposure

While in the case of centralized exchange spot trading, the whole procedure takes place in a split second, in P2P trading, it may take several minutes to over an hour. All this time, the market price of the cryptocurrency involved in the trade may change drastically; as a result, one party may not be satisfied with the terms of the trade.

How to avoid it:

Select an acceptable time limit (15 to 60 minutes)
It’s essential to check the market rate before your trade. It is important to avoid large trades if the market volatility is high.

Neglecting personal security and privacy

With P2P trading, sometimes one has to reveal personal data such as names and contact information. This can be misused, as some people might later fall prey to problems, including identity theft. It could also be used for SIM swapping.

How to avoid it:

Turn on two-factor authentication for both your P2P account and your email, using an app rather than SMS.
Use secure, original passwords; do not reuse them.
Consider assigning a different phone number or email address for cryptocurrency trading.

Regulatory and Compliance Considerations for P2P Exchanges

The growing worldwide popularity of cryptocurrencies has also led the government to focus on peer-to-peer exchanges. Nevertheless, most of the peer-to-peer exchanges follow certain regulations to ensure the security of their members.

Navigating KYC and AML requirements. KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations require verifying customer identity and monitoring transactions for any suspected activity. This is prevalent in almost all nations worldwide, with the primary objective of inhibiting money laundering, terrorist financing, and fraud.

Balancing privacy with legal compliance. This brings us to one of the most critical advantages of P2P trading: the level of privacy you get when transacting is much higher than when working with banks or traditional exchanges. These platforms maintain a balance in this regard by sharing only those pieces of information that are required by regulations, and your information cannot be disclosed to the other party to the transaction unless you choose to share it.

Reporting and audit obligations for P2P platforms. Licensed peer-to-peer operators must monitor their transactions and notify law enforcement if any appear suspicious. Suspicious transactions involve large transactions, such as cash-like transactions and quick buy/sell schemes, and also include countries that exist within a ‘high risk’ zone.

The Future of P2P Exchanges in a Multi-Chain World

In the years to come, the cryptocurrency market will shift to a multi-chain system, and peer-to-peer exchanges will undergo evolutionary changes. Due to the evolving nature of technology in this space, the future of peer-to-peer exchanges will be inclusive and automated.

Integration with multiple blockchains for seamless trading

Future P2P transactions will use cross-chain technologies that enable the simultaneous transfer of assets across numerous chains without relying on centralized systems, such as bridges. These technologies will make P2P more universal by removing obstacles, minimizing the costs of using bridges, and unleashing customer assets.

AI and automation for smarter trade matching

AI-based fraud detection, pricing prediction, and bots that perform processes for companies, using user-defined criteria, will be available across a variety of platforms. Websites will use machine learning to personalize services such as potential transaction detection and trustworthy contractor selection.

Cross-chain liquidity and interoperability solutions

A major issue in multi-chain reality is liquidity fragmentation. The emergent P2P marketplaces will enable aggregated liquidity across chains through the services of decentralized liquidity aggregators.

Concepts of chain abstraction would make it ridiculously easy to move money around; thus, the P2P exchanges would become the nodes for DeFi operations such as yield optimization and/or trading.

Enhanced security through decentralized protocols

Non-custodial outcome solutions, coupled with smart contract automation, will reduce the need for intermediaries in trade interfaces. Even more advanced solutions, such as quantum encryption methods, might mitigate the risks that come with trade interfaces.

Final thought

Peer-to-peer exchanges, which offer lower prices, greater flexibility, and better accessibility than traditional methods, are gradually transforming how consumers obtain and trade bitcoins. With this approach, consumers can communicate directly without the intermediaries that are usually involved in the bargaining process.

Though there are advantages to P2P trade, consumers must still exercise caution when trading on P2P websites to avoid potential problems such as fraud, confusion, and privacy issues. By following good procedures, including ensuring the other party to the trade is honest and reputable and using trusted payment methods, the consumer experience may be excellent when buying and selling online.