definition for intermediary

What Is an Intermediary?

An intermediary is a third party that connects individuals with needs to providers, assuming certain trust and service responsibilities. Intermediaries can be companies, platforms, or tools—the core function is to make transactions smoother and more predictable.

In everyday life, real estate agents help screen listings, verify information, and arrange contracts; banks handle clearing and reconciliation during fund transfers; ride-hailing platforms match passengers with drivers and provide customer support. These are all examples of intermediaries in action.

Why Do Intermediaries Exist?

Intermediaries exist to address information asymmetry and trust issues in transactions, as well as to fulfill professional and compliance roles within processes. Without intermediaries, individuals would find it difficult to handle screening, negotiation, payments, and dispute resolution at low cost.

Common reasons include:

• Information Aggregation: Centralizing scattered supply and demand in one "marketplace."
• Trust Assurance: Providing identity verification and breach management, such as deposits and insurance.
• Process Efficiency: Standardizing contracts and operations, shortening transaction times.
• Clearing and Settlement: Acting as "bookkeepers and verifiers" during fund delivery and reconciliation.
• Compliance Duties: Managing customer identification and reporting in regulated environments.

How Do Intermediaries Earn Fees?

Intermediaries earn revenue by providing services and assuming responsibilities within transactions. Common models include:

• Service Fees or Commissions: Charged as a percentage of the transaction or at a fixed rate, covering costs like matching and customer support.
• Spread: Earning a reasonable margin by leveraging price differences when matching buyers and sellers.
• Custody Fees: Charged for safeguarding client assets and handling their management and verification.
• Value-Added Service Fees: For providing insurance, guarantees, expedited reviews, training, etc.

As long as the service effectively reduces risk and time costs, the market is willing to pay intermediaries. Conversely, excessive fees or inadequate services are likely to be replaced by more efficient alternatives.

What Does an Intermediary Mean in Web3?

In Web3, intermediaries include both traditional institutions and code-driven service models. For example, fiat on-ramps and off-ramps require regulated providers—these are intermediaries. Centralized exchanges also serve as intermediaries by facilitating order matching, risk control, and customer support.

On the other hand, "code-based intermediaries" have emerged on-chain—programs that automatically execute rules on the blockchain. The most common are smart contracts: programs deployed on-chain that automatically complete operations when conditions are met, without human approval. This approach reduces reliance on single institutions for trust.

Who Replaces Intermediaries in DeFi?

In decentralized finance (DeFi), certain traditional intermediary roles are replaced by on-chain components:

• Smart Contracts: Act as "rule enforcers." In lending and swaps, they automatically execute collateralization, liquidation, and exchange logic, minimizing human intervention.
• Liquidity Pools: Funders inject tokens into pools for others to swap at any time, replacing some functions of traditional market makers and order book matching.
• Oracles: Services that bring off-chain information like prices onto the blockchain—like "sensors." Without them, contracts cannot access real-world data.

These components automate transactions but introduce new risks such as contract vulnerabilities or price manipulation, requiring robust security design and audits.

Can Intermediation Be Fully Eliminated?

Completely removing intermediaries is not realistic. Processes that connect to the real world—such as fiat on/off ramps, identity verification, and compliance reporting—require service providers with clear accountability. In addition, many users desire human support for customer service, dispute resolution, or asset recovery.

Therefore, the more accurate approach is to "reduce unnecessary intermediation": delegate automatable tasks to code, while responsibilities involving legal or customer support should remain with accountable institutions—a collaborative model.

How to Choose an Intermediary for Investment or Trading?

You can evaluate your choices step by step:

Step 1: Identify your needs. If you want to purchase digital assets with fiat currency, you must use a compliant fiat gateway—this is intermediary service.

Step 2: Assess your risk tolerance. If you can securely manage your private keys and understand on-chain interactions, you might prefer a more decentralized approach; if you value customer support and risk controls, consider custodial or fully managed channels.

Step 3: Consider transaction size and frequency. Large or high-frequency transactions require stronger risk control and settlement efficiency; smaller or infrequent trades can accept more simplified paths.

Step 4: Review fees and hidden costs. Compare explicit fees, spreads, as well as withdrawal, deposit, and network charges.

Step 5: Verify compliance and security. Check for clear user agreements, risk disclosures, security mechanisms; note any history of security incidents or emergency plans.

For example, if you need to buy crypto quickly with fiat currency, you can use Gate’s fiat purchase or express channels—these are compliant intermediary services. If you prefer on-chain transactions and self-custody of assets, use a non-custodial wallet and decentralized protocols for swaps. If you prioritize deep liquidity, risk management, and customer support, Gate’s spot or derivatives trading offers custodial accounts with risk control tools.

What Are the Risks Associated With Intermediaries?

The main risks of using intermediaries include:

• Custody and Centralization Risk: Centralized asset custody can create single points of failure or misuse; transparent risk controls and audits are necessary.
• Fee and Terms Risk: Complex fee structures, withdrawal limits, or changes in terms may impact costs and liquidity.
• Censorship and Compliance Risk: Regulatory requirements may impose restrictions on certain regions or assets.

Decentralized approaches also come with technical risks:

• Contract Vulnerabilities: Flaws in smart contract code can lead to loss of funds.
• Price Manipulation: Oracle malfunctions may trigger erroneous liquidations.
• Private Key Management: Self-custody risks irreversible losses due to poor backup practices or phishing attacks.

Regardless of your path, always diversify risk, back up securely, and operate within your capabilities.

What Are the Trends and Boundaries of Intermediation?

In recent years, transactional processes have trended toward "automating what can be automated with code; institutionalizing what requires accountability." Fiat on/off ramps, identity verification, and compliance reporting still require intermediaries for legal obligations and customer support. However, highly standardized processes like order matching, clearing, and asset transfers are increasingly automated by smart contracts. For individual users, the key is selective adoption—using intermediaries where trust assurance and support are needed; adopting decentralized solutions where automation and verifiability suffice—to balance security, efficiency, and cost.

FAQ

What Role Do Intermediaries Play in Everyday Life?

Intermediaries act as bridges between buyers and sellers by providing information services such as evaluation and matchmaking to help facilitate transactions. For example, real estate agents connect property owners with buyers; financial intermediaries (like banks) match depositors with borrowers. Intermediaries typically charge commissions or fees to sustain their operations.

How Do Intermediated Transactions Differ From Direct Transactions?

Direct transactions require both parties to independently find each other, negotiate terms, and bear risks—this is less efficient and more costly. Intermediaries provide professional services to reduce information asymmetry and shoulder some risks, making transactions more efficient. However, they charge fees for these services.

Why Do Some People Want to Eliminate Intermediaries?

The core goal of eliminating intermediaries is to lower transaction costs while increasing efficiency and transparency. Traditional intermediaries often have information monopolies, charge high fees, or have complex procedures. Blockchain technology enables direct peer-to-peer interaction via smart contracts, reducing dependence on middlemen—this is the ideal of “disintermediation.”

Can All Transactions Be Fully Disintermediated?

It is very difficult to completely eliminate intermediaries in reality. Even with technology supporting disintermediation, functions like risk assessment, dispute resolution, and credit guarantees still require responsible parties. A more realistic path is for intermediary roles to evolve—from monopolizing information to providing value-added services; from being mere middlemen to becoming service providers.

How Can You Identify a Reliable Intermediary?

When choosing an intermediary, focus on several aspects: check qualifications and industry reputation; compare fee transparency; understand service scope and after-sales support. It’s advisable to compare multiple providers—avoid those with excessive fees or unrealistic promises. Always keep transaction records for evidence in case of disputes.