#CEXvsDEX101
Here’s a breakdown of the differences between centralized and decentralized exchanges (CEX vs DEX):
1. Definition
Centralized Exchange (CEX):
Operated by a centralized company or entity.
Examples: Binance, Coinbase, Kraken.
Users create accounts, and the platform manages custody of funds.
Decentralized Exchange (DEX):
Operates without a central authority.
Built on blockchain networks like Ethereum or Solana.
Examples: Uniswap, PancakeSwap, SushiSwap.
Users trade directly from their wallets.
2. Control & Custody
CEX:
The platform holds user funds and private keys.
Users must trust the exchange to safeguard assets.
DEX:
Users maintain full control over their funds and private keys.
No intermediary custody — “not your keys, not your coins” does not apply.
3. Security
CEX:
Vulnerable to hacks, theft, and internal fraud.
Many have been targeted due to holding large amounts of crypto.
DEX:
Generally more secure in terms of custody, as users keep control.
Smart contract bugs and exploits are the primary risks.
4. KYC/AML Requirements
CEX:
Usually require identity verification (KYC – Know Your Customer).
Comply with government regulations and anti-money laundering laws.
DEX:
Typically do not require KYC.
Privacy-focused, though this is changing in some jurisdictions.
5. Liquidity
CEX:
Generally higher liquidity due to large user bases and market makers.
Faster trades and tighter spreads.
DEX:
Liquidity depends on users providing assets (liquidity pools).
May have slippage and lower volume in less popular pairs.
6. Trading Features
CEX:
Offer advanced tools: margin trading, futures, stop-loss orders, etc.
User-friendly interfaces and customer support.
DEX:
Basic spot trading (though some are integrating more advanced features).
Often less intuitive interfaces and no customer support.
7. Fees
CEX:
Fees vary by platform and trading volume.
May include deposit, withdrawal, and trading fees.
DEX:
Fees go to liquidity providers and blockchain miners/validators.
Can be higher during network congestion.
