Most crypto bros are surely available with these terms: DEX and CEX. Everything’s clear: they are decentralized and centralized exchanges.
As of September 2020, there was the only decentralized exchange — UniSwap. Nowadays, users use more than 20 decentralized exchanges worldwide, and the most visited one is Pancake Swap.
But, one may have one obvious question: what to choose and which is better? Let’s take a closer look at their pros&cons.
Cryptocurrency centralized exchanges (CEX) are similar to traditional stock exchanges, but unlike them, crypto exchanges do not have brokers. CEX is an intermediary in trading between users and guarantees the security of transactions.
Trading in all CEXs is conducted through a table of orders for purchasing and selling cryptocurrencies, which is called the order book. It contains all orders for buying and selling assets of the trading crypto platform. The supply and demand determine the value of assets.
Simple and convenient
CEX is the most accessible crypto trading platform and is easy for any beginner to understand. It is enough to register or KYC check, deposit funds, and you can trade crypto assets.
Centralized exchanges vary in functionality. The smallest and simplest ones allow users to make transactions with crypto-crypto trading pairs, such as USDT/BTC. Large platforms usually offer fiat/crypto trading pairs and many additional tools: margin trading, staking, farming and deposit products, crypto derivatives, etc.
CEX is the most popular type of crypto exchange and the standard of the crypto market. Most of the liquidity of the crypto market is indeed placed on them.
The user’s cryptocurrencies are stored in the wallets of the exchange. By transferring crypto assets to the exchange’s wallets, the user ceases to own them — these coins already belong to the exchange. The wallet may be frozen, the assets may be embezzled, or it can be hacked.
Fees for transactions
CEXs charge fees for every transaction. For example, the transaction fee on Binance ranges from 0.012% to 0.1%. In addition, you will have to pay a commission when depositing fiat funds — it can be up to 5% of the amount.
Decentralized exchanges are platforms that allow users to trade with each other directly, i.e., without intermediaries.
The main point is that DEXs don’t have centralized authority that could block the account or withdraw the user’s funds. But at the same time, no one except the user is responsible for their safety: if the user suddenly loses access to the wallet, then no one can help them.
Trading in the DEX is done in two ways. Some sites work with applications like regular CEXs, bringing buyers and sellers together using smart contracts. But the market is much more popular than DEX platforms that use liquidity pools — collective storage of users’ crypto assets.
How does it work? Unlike CEX, there are no order books or market makers in DEX; instead, it is liquidity pools that provide liquidity. To tell a long story short, DEX users can exchange assets directly from the liquidity pool without waiting for buyers or sellers. Each pair of assets has its own pool, for example, for USDT and ETH there is a USDT/ETH pool, through which users can exchange their USDT for ETH, and vice versa.
It is noteworthy that the final exchange rate is determined using an algorithm based on the ratio of assets in the pool: when coins are bought, their value increases, and when they are sold, they decrease.
At the same time: note that no regulation means no responsibility for emerging problems.
Users store cryptocurrencies in their own wallets, not on exchange wallets, and this reduces the likelihood of losing funds in the event of a hack.
No need to go through verification and KYC verification, you can remain anonymous.
Variety of crypto assets
To be listed on the CEX, an asset must meet specific requirements, such as maintaining high trading volumes and complying with legal standards. Any asset can be listed on the DEX, so DEX users can buy many cryptocurrencies that are not listed on the CEX.
Services such as margin trading and complex orders (take profit, stop loss) are usually unavailable.
No fiat/crypto trading pairs
The use of smart contracts means that most DEXs run on the same blockchain, such as Ethereum, Binance Smart Chain, Solana, or Avalanche. Therefore, you can trade on a decentralized platform only with assets issued on a specific blockchain and support smart contracts.
This reduces the number of available trading pairs, and if the desired pair is not available, then the trader has to perform several operations to convert one asset to another, each time paying a transaction fee.
On DEX it is several times less than on centralized counterparts. According to The Block, DEX trading volume in 2021 was $1 trillion, while CEX over the same period was over $14 trillion. This is one of the critical disadvantages of DEX.
Suppose you are a beginner, willing to buy cryptocurrencies for fiat money or invest in popular altcoins. In that case, the easiest way is to use the convenient centralized platform available in your country.
For those who want to trade with yet small-cap tokens, DEX is the best choice. But here, we must understand that decentralized exchanges aim at more experienced users who are unsatisfied with simple spot trading.
When choosing a suitable DEX note: you should always pay attention to the blockchain the DEX is built on, how long it has existed and what audits it has passed. The second is that if there were no problems at the first stage, the platform was not subjected to any hacks; see how the DEX works. It is also crucial to look at the total staked liquidity. This is a considerable risk if you are one of the first providers.
And last but not least!
We want to let you know that Weld Money native token WELD is listed on DEX as well as CEX, so don’t hesitate to check it right there while the price is totally affordable.