What is Intermediary/Middleman?

An intermediary, or a middleman, is a person or an institution that acts as a mediator between two parties and helps them settle agreements or carry out orders. Financial institutions such as crypto exchanges, financial advisors, investment banks, mutual funds, credit unions, and investment trusts can act as intermediaries.

It’s beneficial to use financial intermediaries because they can enhance security, improve liquidity, and lower costs. For example, when using crypto exchange, you’ll probably get lower transaction fees because it normally achieves economies of scale. Besides, it’s important to note that many platforms add a margin to generate more profit.

However, there are also some disadvantages of using intermediaries. For example, if an investor ends up holding his digital assets in a wallet on the intermediary platform, he might end up putting his funds at risk if the exchange platform, let’s say, is targeted in a cyberattack.

Moreover, there is a possibility of outages which is definitely an issue. For example, some centralized exchanges have had to halt withdrawals because of police investigations which left investors unable to retrieve their assets. Other platforms also have gained a bad reputation for going offline when, let’s say, crypto assets like Bitcoin experience substantial price changes.

Therefore, it is especially important to do research before choosing an intermediary. It’s crucial to consider that companies with a less clean reputation may exaggerate trading volumes to make them appear larger than they are.