There are hundreds of crypto exchanges, with new ones appearing daily. Although numerous criteria are to consider before picking a platform, a beginner’s first choice is “CEX or DEX?”. Keep reading to learn the difference between centralized and decentralized exchanges, their work principle, and the pros and cons!
What is CEX?
CEX stands for centralized crypto exchanges. As the term suggests, such platforms are operated and controlled by a central entity. Usually, a financial service provider runs an exchange as a business. CEXs can be compared to traditional banks: you come and store money in its vaults, withdrawing a certain amount when needed for a fee. Centralized exchanges connect their users for further trading operations, acting as middle-man.
- Ease of use. As a rule, centralized exchanges are more user-friendly and beginner-oriented; therefore, such trading interfaces would be easier to grasp.
- Liquidity. CEXs offer high liquidity, allowing institutional investors to conduct large trades while avoiding market slippages.
- Regulation. Centralized exchanges must adhere to KYC and AML policy, meaning you are less likely to interact with high-risk crypto wallets.
- Password reset feature. Although it may seem like a minor thing, it is pretty convenient. You would be surprised how much crypto was lost just because owners forgot their private keys.
- Fiat gateways. Last but not least, centralized exchanges allow for fiat deposits and withdrawals, making it easier for beginners to manage their funds.
- No anonymity. As mentioned before, due to AML and KYC rules, CEX users have to undergo mandatory verification, which crypto enthusiasts often criticize.
- Less control over funds. There is a saying in the industry — “Not your keys, not your coins.” Since you deposit funds into the exchange’s storage, it will have access to your coins.
What is DEX?
DEX stands for decentralized crypto exchanges. Unlike CEXs, such platforms operate without a central organ and are run by an algorithm. DEX users conduct peer-to-peer transactions without the exchange acting as an intermediary.
- Full anonymity. There is no need to disclose personal information to a decentralized exchange.
- Complete control over funds. You will solely control your coins since the platform doesn’t have access to the client’s private keys.
- Variety of tokens. Usually, decentralized services feature more cryptocurrencies, as any community member can initiate a listing.
- Complex trading layouts. Decentralized exchanges are primarily targeted at experienced merchants familiar with basic crypto trading functionality.
- More responsibility. Be sure to write down your private keys, as there won’t be a chance to reset the password.
- Variety of tokens. This can be a con as much as a pro since users have to conduct market research to find promising assets.
- Less liquidity. For comparison, the daily volume of the biggest DEX Uniswap is roughly $1,5 billion, while the same parameter on Binance, the number-one centralized exchange, exceeds $20 billion. However, to be fair, this matters most for institutional investors who trade millions of dollars.
CEX or DEX: what to choose?
Although DEX occurred as an answer to the shortcomings of centralized exchanges, both types of platforms have benefits and risks. CEX might be a good option for newcomers getting familiar with the crypto market and looking for convenience and ease of use. As for decentralized platforms, they are usually preferred by experienced traders who value anonymity and want to maintain complete control over their funds.