What are Nested Crypto Exchanges and How to Avoid Them?

What is a Nested Exchange?

A nested exchange is a cryptocurrency trading services provider that processes crypto trades via another account present on a different trading platform. In this manner, the platform does not process direct trading but works as a bridge between users and other trading service providers.

Usually, the nesting technique is used in traditional banking platforms to extend services such as international payments. Nested exchanges for virtual currencies often have no or nominal KYC and AML checks.

Therefore, scammers can take advantage of this facility. Therefore, nested exchanges can be riddled with illegal activities such as money laundering, scams, and ransomware. When an investor decides to go with a nested exchange, they are putting their crypto holdings at risk of cybercriminals.

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At the same time, they have less security and safety in comparison to a decentralized or centralized exchange. At the same time, account holders can get in trouble with the law enforcement agencies for using sanctioned platforms.

What is Nesting?

Nesting is a process where one financial firm opens an account in another financial firm to access their services. The account holders using a nesting platform can make transactions using the bridge. The reason for nesting services is to facilitate international payment services such as between banks present in different countries. It is called correspondent banking.

What is a Nested Trading Platform?

In the blockchain sector, cryptocurrency investors can create an account on a nested trading platform. The process involves creating an account at a regulated exchange and using the account to offer trading options for third-party consumers via nested account sign-ups.

Nested exchanges are also known as instant exchanges and can create several accounts connecting multiple trading platforms.

Limitations of Nested Trading

Nested trading platforms can support illegal financial activities such as money laundering. It is because when a correspondent bank is working with a respondent bank they are not able to ascertain the real identification of the underlying banking services provider.

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Therefore, it is necessary to conduct a higher amount of due diligence when it comes to using nesting services. The negligence of proper regulatory scrutiny can lead to blacklisting for national banking firms and private firms. Here are some risks associated with using nested trading channels for crypto trading:

  • Lesser guarantee for fund security in comparison to regulated trading platforms.
  • The potential to take part in illegal financial activities such as money laundering and terror financing without realizing it.
  • Authorities may seize a nested exchange at any time which can result in freezing of funds for an undisclosed duration.
  • Legal penalties and charges on account of working with a sanctioned nested exchange.

Differences Between Decentralized and Nested Exchanges

Nested exchanges and decentralized exchanges are distinct from each other. Decentralized exchanges do not require any KYC and nested exchanges can have some user verification checks. Decentralized exchanges have liquidity pools for sales and purchases.

Furthermore, decentralized exchanges do not take custody of digital currencies added in LPs. On the contrary, transactions are processed through smart contracts. On the other side, nested exchanges have direct custody of customer funds and also use services of other trading platforms.

Signs of a Nested Exchange

  • Does not have KYC or AML checks or have few user verification checks.
  • The user-Interface does not show progress for transaction or details about trading location.
  • A nested exchange does not solicit trading services openly.
  • When an exchange offers various trading fees and costs for making transactions are dynamic and users can choose from various options.

Nested exchanges can be detected using blockchain explorers or blockchain tracking. In this manner, the investors can find out if an exchange they are using is created from a digital wallet or another exchange.    


When it comes to cryptocurrency trading there are many options available such as centralized exchanges, automated market makers, decentralized exchanges, liquidity pools, etc. However, investors should beware of unreliable and suspicious exchanges that can be operating as nested trading platforms in disguise and expose the investors to potential risks.

Author: Isacco Genovesi

Isacco writes news articles, reviews and guides about cryptocurrencies including technical analysis, blockchain events, coin prices marketcap and detailed reviews on crypto exchanges and trading platforms.

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