How do centralized exchanges detect deposits?

I have a decent tech background (SWE at a SaaS company) but this is something that has always perplexed me. How do big exchanges like Coinbase or Kraken know when a deposit arrives in their exchange?

Surely they can't be querying the balance of every address they own, can they?

My best guess is that they're watching new blocks as they get mined but I have no idea how you handle internal transactions that result from smart contracts like that.