I trade a lot! I've traded stocks, options, and futures. I've traded crypto spot markets and more. I've been trading continuously since 2008, which wasn't the best time to start trading. I am sad to say that I am not an expert trader, even after 12 years.

What I can tell you is that there is a vast gap between the maturity of traditional markets versus cryptocurrency markets. In some ways, the crypto market is more advanced, while in other ways, traditional markets offer better infrastructures.

Each venue has pluses and minuses, but one aspect of the crypto market that stands out like a sore thumb: the rate of outright theft. By modest estimates, the crypto industry has lost $2 billion to theft from exchanges since 2014. These thefts include exchange exit-scams, full account takeovers through sim-swap, and exchange hot wallet hacks. Given the relatively small size of the crypto industry as a whole, the loss due to theft is exceptionally high.

Whenever I am trading on a crypto exchange, there is always something in the back of my mind about whether my deposited amount will be stolen. "Funds are safu" is the meme.

Another problem I see is the ability of the exchange to freeze customer accounts in the future. All of this comes as no surprise to anyone having traded on a crypto exchange. So I will cut to the chase.


Centralized exchanges offer a couple of things that cannot easily be accomplished in any other way. First, they act as a fiat on-ramp. They can do this because they have complied with local authorities to allow them to receive fiat money and to reflect that balance for their customers. In the United States, any business that takes money from one party and gives to another is called a Money Services Business. If the exchange company does not create a per-customer bank account and has "effective control" over depositor funds, then they probably would have had to register as a MSB under the Banking Secrecy Act, which this has three consequences:

First, MSBs need to obtain your private data in order to "vet" you as a customer. Under the BSA, all MSBs are required to get KYC (Know Your Customer) info, and to keep AML (Anti Money Laundering) records, both of which can be intrusive and onerous for certain use cases.

Second, according to the BSA and other laws, exchanges can easily be compelled to disclose customer information.

Third, it is the MSB's responsibility to keep a customer's Personally Identifiable Information (PII) safe.

If you consider the above three carefully, you'll realize the following:

  1. Exchanges can be compelled to freeze your account with little or no recourse.
  2. Accounts can be hacked using login and recovery information tied to PII.
  3. Less reputable exchanges can run away with both your PII and your money.
  4. Exchanges can resort to raiding customer funds to subsidize theft due to security breaches.

Centralized exchanges, however secure they may think they are, have an inherent design flaw: centralized fund custody.


When you open an account with a centralized exchange, you are delegating many responsibilities to them. Centralized exchanges, like Coinbase and Binance, are unaccountable to customers who wish for transparency and auditability. You and I have no idea whether the order matching engine plays fair, or whether it gives preference to VIP participants. In the traditional markets, SEC and CFTC, through SROs like Finra, audit and review trading venues to see whether they are operating consistent with their rules. Barring gross negligence, which is possible, there is a lot more money at stake, and mutual distrust of market participants as well as an entrenched and developed industry system keep outright fraud at bay reasonably well. The same cannot be said of centralized crypto exchanges.


Many of us trade convenience for security when we trade in a fully decentralized exchange. I think it is the way of the future. Technologies like Bisq are leading the way in providing an unassailable marketplace for privacy-minded traders. While Arwen and others allow for zero-trust trading with a centralized venue, it's an exciting time to be working on the next generation of exchanges. Decentralized Exchanges combine custody decentralization with order matching decentralization. The design provides a censorship-resistant, high-availability trading venue ideally suited for quote based marketplaces. However, for all the benefits DEXes confer, there are some shortcomings.

Traders generally have an expectation of speed and liquidity from the venues they trade. It's no wonder centralized exchanges like Coinbase and Binance have orders of magnitude larger volumes, even for the crypto-to-crypto trading pairs. Centralization confers performance benefits. One can think about the reason why on-chain updates are necessarily slower - blockchains exist to create an orderly sequence of transactions. Because you trade performance for serially acceptable transactions, DEX platforms are inevitably going to be slower.

There is the time value of money, and once your order modification is tied to blocktime of a cryptocurrency network, there exists a non-trivial spread due to slower speed of order modifications. Some DEX projects attempt to address these, but more often than not, it requires a herculean re-engineering or at least a very clever one. Cross-chain interoperability layers, like Polkadot and Cosmos, offer some promise but are subject to limits of hub chain and constituent bridging integrations. Unfortunately, using an interop layer means that one would have to pay a toll on each transaction, regardless of how simple or reduced a transaction may be.

DEXes offer a brighter future for everyone, but solutions required to allow comparable performances are often are much more complicated than necessary for a more straightforward application like a crypto exchange.


I propose a non-custodial exchange: Centralized order management with a decentralized settlement. It's not a new idea. Unfortunately, others in the non-custodial exchange space seem to have missed the message when it comes to classification.

An exchange cannot claim to have a non-custodial nature if the exchange operators can exert effective control over the customer money. If the exchange requires you to sign up and provide KYC as a precondition for a "non-custodial" account, they are probably stretching the definition quite a bit. If you look closely under the hood, their "non-custodial" exchange probably could freeze your funds, and to take them away at will. Check their smart contract implementations. If they co-mingle your money with other accounts, they're risking enforcement from FinCEN. The very concept of having an "account" with an exchange means that the exchange controls your money and access to your money.

Imagine an exchange where you use your wallet to create a self-custody escrow - a non-upgradeable smart contract, which can be audited that contains your funds and settlement rules. The exchange will collateralize your trading balance through your escrow contract, and the available balance is settled among the counter-parties in a peer-to-peer fashion not requiring trust for any process you can't verify.

In the proposed Tacen exchange, market participants can listen in on all market activities, even the stream of the exchange's orderbook reshuffles. These data can then be stored by participants, and subsequently be used for calculating settlement data. The market participants providing settlement data for the escrows can benefit by earning a portion of the fees. We imagine this being 0.1% or less in total, with the exchange taking half and settlement data providers taking the other half. In other words, we would like to incentivize the crypto community as a whole to own the trading activity data and to profit from it.

Tacen will provide a global pool of liquidity. By fully complying with US and EU regulations, we plan on launching in two of the most onerous regulatory regimes simultaneously. It will be a privacy-oriented crypto exchange with a trading experience akin to the current generation of centralized exchanges, all the great parts minus the KYC and fiat.

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