#CEXvsDEX101 A centralized exchange is a platform for trading securities and cryptocurrencies managed by a central authority, such as a company or financial institution. In contrast, a decentralized exchange (DEX) is a trading platform that operates based on decentralized technology, such as blockchains.
Centralized Exchange (CEX):
Definition:
A trading platform owned and overseen by a central party.
Process:
The central party provides the securities and cryptocurrencies and facilitates trading between users.
Advantages:
High liquidity, a wide range of securities, advanced security systems, good customer support.
Disadvantages:
Subject to government oversight and regulations, may be vulnerable in the event of a system breach, may have high fees.
Examples:
Major cryptocurrency trading platforms such as Binance and Coinbase.
Decentralized Exchange (DEX):
Definition:
A trading platform operating on a decentralized network like Ethereum.
Process:
There is no central authority controlling the process; instead, assets are traded through smart contracts on the blockchain network.
Advantages:
Higher security, greater user control over their assets, reduced transaction costs, increased transparency.
Disadvantages:
Liquidity may be lower, may be less user-friendly than centralized exchanges, may be more susceptible to technical errors.
Examples:
IDEX and Uniswap.
Key difference:
The key difference between centralized and decentralized exchanges lies in the nature of control. In a centralized exchange, the central party has control over the assets and trading, while in a decentralized exchange, there is no central authority, and control over assets and trading is in the hands of the users.
