When you sell cryptocurrency, the person or entity on the other side is one of four things: another retail trader whose buy order matched yours on a centralized exchange, a professional market-making firm running high-frequency algorithms, a smart-contract liquidity pool on a decentralized exchange, or a specific individual or over-the-counter desk in a peer-to-peer trade. Which one buys your crypto when you sell it depends entirely on where and how you place the order, and it shapes your price, your fees, and the risks you carry.
Another Retail Trader on a Centralized Exchange
The most common answer is the simplest one. On Coinbase, Kraken, Gemini, and similar platforms, a matching engine pairs your sell order with someone else’s buy order. A market order fills against the highest standing bid immediately. A limit order sits in the order book until a buyer meets your price. Neither side learns anything about the other; the exchange handles the transfer internally and updates both balances.
That buyer might be a first-time investor abroad whose limit order has been resting for days, or someone hitting the market during a price dip. The mix is what keeps order books healthy. More buy orders across more price levels means you’re more likely to get a fair fill without waiting. On thinly traded tokens, a sell order can sit unfilled for hours or execute noticeably below the price you saw when you clicked.
Centralized exchanges operating in the United States must register with FinCEN and comply with the Bank Secrecy Act, which requires them to keep detailed transaction records and report suspicious activity.1Financial Crimes Enforcement Network. A Quick Reference Guide for Money Services Businesses When the listed assets qualify as securities, the SEC also has jurisdiction, and it runs a dedicated crypto task force focused on trading platforms.2U.S. Securities and Exchange Commission. Crypto Task Force
A Market Maker’s Algorithm
For popular tokens with high volume, your buyer often isn’t a person. Institutional market makers post buy and sell orders on major exchanges thousands of times per second. When you sell Bitcoin or Ethereum on a big platform, there’s a real chance one of these firms absorbs your order before any retail buyer sees it.
Market makers earn the bid-ask spread, the small gap between the price they’ll buy at and the price they’ll sell at. On a liquid pair like BTC/USD that spread might be a fraction of a cent. On a low-volume altcoin it can be much wider. Their constant presence is what lets you sell a meaningful position without the price collapsing beneath you. Without them, sellers would routinely see significant slippage.
When these firms operate through registered broker-dealers, they owe best-execution duties under FINRA Rule 5310, which requires reasonable diligence to find the best available market for a customer’s order given price, volatility, liquidity, and order size.3FINRA.org. FINRA Rule 5310 – Best Execution and Interpositioning Firms handling crypto that qualifies as a security also face FINRA membership and compliance obligations.4FINRA. Crypto Assets
A Smart Contract on a Decentralized Exchange
On Uniswap, Curve, and other decentralized exchanges, there is no matching engine and no order book. The buyer is effectively a smart contract holding a pool of tokens that other users have deposited to earn a share of the fees. Sell ETH for USDC and you’re sending ETH into the pool and pulling USDC out of it. No specific human is opposite you at the moment of the trade.
An automated market maker sets your price from the ratio of tokens in the pool. The standard formula (x × y = k) means the price shifts as you add one token and remove the other. Larger trades relative to pool size cause bigger shifts. Selling a big position into a small pool produces painful slippage. On major pairs with deep liquidity, slippage on a normal-sized trade might stay under 0.5%. On smaller altcoins with thin pools, you may need to accept 2–5% just to get filled.
You pay a protocol fee on each swap, which goes to the liquidity providers. Uniswap v3 pool creators pick from four tiers: 0.01%, 0.05%, 0.30%, and 1.00%, with the higher tiers typically applied to more volatile or exotic pairs. On top of that, you pay a blockchain gas fee. On Ethereum’s main network a swap runs a few dollars during normal congestion. Layer 2 networks like Arbitrum, Optimism, and Base bring that well under a dollar in most conditions.
One boundary matters here: OFAC sanctions apply regardless of whether you trade on a centralized or decentralized platform. Interacting with a sanctioned wallet address can trigger serious civil penalties.5Office of Foreign Assets Control. Questions on Virtual Currency OFAC has settled cases against crypto firms for millions of dollars, and statutory maximums reach into the hundreds of millions.6U.S. Department of the Treasury. Civil Penalties and Enforcement Information
A Specific Person or OTC Desk
Peer-to-peer platforms put you across from a named buyer you can sometimes message. You agree on price and payment method (bank transfer, mobile payment app, occasionally cash), and the platform holds your crypto in escrow until the buyer’s payment clears. You get more control over terms, and you take on risks that don’t exist on centralized exchanges.
The biggest risk is payment reversal. A buyer pays you through a reversible method, you release the crypto, and the buyer then disputes the payment with their bank. Once crypto leaves escrow, it’s gone. Blockchain transactions are irreversible. Sticking to hard-to-reverse methods like bank wires rather than credit card payments reduces the risk, but doesn’t eliminate it. Reputable platforms use reputation systems and dispute resolution to help, but treat every trade with caution.
Over-the-counter desks handle a different problem. Someone selling hundreds of thousands or millions of dollars of a token through a public order book would move the market against themselves. OTC desks arrange private trades with pre-screened counterparties, usually institutional buyers or high-net-worth individuals, at a negotiated price. The buyer is a known and identity-verified entity, and the trade settles off the public order book.
What Each Path Costs You
Costs vary more than most new sellers expect. Retail trading fees on centralized exchanges typically run from about 0.05% to 0.60% per trade, and higher-volume traders pay less. Some platforms charge roughly 1% on their standard interface but offer better maker-taker pricing on the advanced view. ACH withdrawals to a U.S. bank are usually free at major exchanges; wire transfers can cost up to $25.
Decentralized exchanges layer two explicit costs: the protocol fee (0.01% to 1.00%) that goes to liquidity providers, and the network gas fee that goes to validators. Selling on Ethereum mainnet costs meaningfully more in gas than selling on a Layer 2. Slippage is a third, quieter cost, and on low-liquidity pools it can dwarf the fees.
Peer-to-peer trades may charge little or no platform fee, but the negotiated price often includes a premium or discount versus the market rate. OTC desks charge a spread or commission that varies by deal size, and for very large positions that total can still beat the market impact of dumping the same size onto a public exchange.
Staying Safe by Counterparty Type
Who buys your crypto also shapes what can go wrong. On centralized exchanges, the platform absorbs most counterparty risk because it guarantees settlement. Your main exposures are exchange insolvency and account compromise.
Decentralized exchanges introduce malicious smart contracts. Wallet drainer scams typically work by getting you to sign a token approval that looks routine but grants the attacker broad access. The code uses functions like “Permit” and “approveAll” to reach tokens and NFTs across your wallet. If a site asks you to sign something described as “verification” or “authentication” before a trade, treat it as a red flag. Legitimate swaps approve a specific token amount for a specific contract, not blanket permissions. No legitimate service asks for your seed phrase.
Peer-to-peer trades carry the most direct counterparty risk. Beyond payment reversals, sellers get pressured to release crypto before payment fully settles. Never release from escrow until your bank confirms the funds have arrived (a screenshot from the buyer is not confirmation), and prefer irreversible payment methods for large amounts.
Taxes Apply No Matter Who Buys
The IRS treats digital assets as property, so every sale is a taxable event that produces a capital gain or loss, regardless of who was on the other side.7Internal Revenue Service. Digital Assets Your gain or loss equals the sale price minus your cost basis, including transaction fees. Buy 1 ETH for $2,000, pay a $10 trading fee, sell for $3,500, and your capital gain is $1,490.
Holding period sets the rate. Crypto held one year or less produces a short-term gain taxed at ordinary income rates. Crypto held more than one year qualifies for long-term capital gains rates, which are significantly lower.8IRS. Rev. Proc. 2025-32 – Inflation-Adjusted Items for 2026 Higher-income sellers may also owe the 3.8% Net Investment Income Tax.9Internal Revenue Service. Questions and Answers on the Net Investment Income Tax You report each sale on Form 8949, which now has dedicated boxes for digital asset transactions, and the totals flow to Schedule D.10Internal Revenue Service. Instructions for Form 8949 (2025) Failing to report can trigger a 20% accuracy-related penalty on the underpayment plus interest.11Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
One change worth knowing about: for transactions on or after January 1, 2025, custodial crypto platforms must report gross proceeds to the IRS on the new Form 1099-DA, and for transactions on or after January 1, 2026, they must also report your cost basis.12Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets By the time you file your 2026 return, your exchange will have sent both you and the IRS a record of what you sold, what you received, and what your basis was. Decentralized and non-custodial platforms are not currently covered by these reporting rules.