Decentralized exchanges (DEXs) are growing in popularity among crypto users. Over the past year, DEXs have provided significant competition to the centralized exchanges (CEXs) that currently control trading.
Speaking to BeInCrypto, industry experts from CoinGecko, Gate.io, and PancakeSwap said they expect DEXs to grow in 2025, but also suggested that CEXs will still be strong competitors for newcomers.
The success of CEXs and DEXs
Since the beginning of crypto trading, CEXs like Coinbase and Binance have dominated the crypto market. These exchanges currently have over 300 million combined users, offering high liquidity and serving as easy-to-use platforms for beginner traders.
Over the past year, DEXs have also gained momentum, providing users with a decentralized alternative for trading. With a higher level of security to prevent fraud and less exposure to overregulation, DEXs challenge CEXs’ control over the crypto market.
But despite the growing adoption of decentralized exchanges, CEXs are far from disappearing.
…while DEXs are poised to continue growing and evolving in 2025, CEXs will still play a key role in the ecosystem, particularly in introducing new users. Both types of exchanges have complementary roles and together will contribute to the overall growth and adoption of crypto in the coming years, said Chef Kids, Head Chef at PancakeSwap.
Taking advantage of these advantages, CEXs will continue to dominate the sector.
Initial control of CEXs
Centralized cryptocurrency exchanges are platforms that store digital assets on behalf of customers and allow them to trade, deposit, and withdraw their cryptocurrencies.
A central entity controls these exchanges and acts as an intermediary between buyers and sellers. This entity is also responsible for ensuring that users’ funds remain safe.
CEXs are the main avenue for cryptocurrency trading because they are easily accessible to beginner crypto investors. Binance, Coinbase, and Kraken are among the most widely used centralized exchanges.
According to Shaun Lee, research analyst at CoinGecko, 2024 has been a very successful year for CEXs.
…overall, CEXs have performed extremely well, with the top 10 showing volumes of more than $2 trillion, across several months in the year. In 2023, the top 10 CEXs have only managed to surpass the $1 trillion mark once, in December, he said.
CEXs also tend to appeal to certain investors because they are subject to strict regulatory oversight. This can act as a safeguard for traders looking to take their first step outside of traditional financial sectors.
The rise of DEXs
DEXs function as a peer-to-peer marketplace and do not rely on intermediaries for crypto trading or custody of funds. Unlike CEXs, which are regulated by a central entity and require users to go through Know Your Customer (KYC) processes, DEXs offer users the ability to trade anonymously.
Their popularity has recently surged, providing traders and investors with a decentralized alternative to centralized exchanges. Built on blockchain technology, DEXs eliminate the need for intermediaries. Meanwhile, immutable smart contracts facilitate trading.
DEX and CEX Trading Volumes in the Last Week. Source: Messari.
These qualities have become increasingly attractive to traders looking to prioritize security and autonomy when exchanging assets.
DeFi platforms have become competitive rivals to CEXs. Hyperliquid, for example, is a layer-one blockchain for decentralized trading that enables high-performance and fast trading with low fees. The exchange has seen widespread adoption over the past year.
“Decentralized exchanges (DEXs) currently capture about 40% of the market, and are gaining ground on centralized exchanges (CEXs). In fact, looking ahead to 2025, DEXs will have even more opportunities to grow. As DeFi matures and adoption increases, decentralized exchanges will play an increasingly central role in the broader financial ecosystem,” said Chef Kids.
Although CEXs and DEXs operate on different structures, both platforms show signs of growing user adoption and success in the field.
Security concerns and overregulation in CEXs
CEXs tend to come under fire for security reasons. Since the platform itself holds the private keys to its customers' wallets, it is fully responsible for the custody of users' assets. Users are vulnerable to potential loss of funds in the event of attacks or sudden exchange closures.
Kevin Lee, Chief Business Officer at Gate.io, explained that given their centralized nature, CEXs need to continue developing mechanisms that increase security and prevent potential security breaches.
“Centralized exchanges (CEXs) must prioritize security by employing comprehensive measures that protect both users and their assets. This involves utilizing advanced technologies such as multi-signature wallets, cold storage solutions for most funds, and robust encryption to prevent breaches. Additionally, regular third-party audits of security systems and smart contracts are critical to proactively identify vulnerabilities. Exchanges should also integrate AI-powered real-time monitoring tools to detect and respond to potential threats immediately,” he said.
Most centralized exchanges use KYC procedures to comply with regulatory requirements designed to prevent illicit activities such as money laundering and terrorist financing. Users must provide identity information, submit supporting documentation, and wait for verification to fund their accounts and begin trading on the platform.
As a result, these platforms are subject to extensive oversight. This can involve stringent licensing requirements and compliance regulations imposed by authorities, which can potentially limit CEXs’ ability to support certain tokens or serve users in specific jurisdictions.
FTX remains
Due to their centralized nature, several prominent CEXs, including FTX, Mt. Gox, and WazirX, have experienced significant security breaches, resulting in substantial financial losses for their users.
One of the most notorious cases is FTX, a prominent cryptocurrency exchange that ranked third globally in trading volume in 2022. FTX went bankrupt in November of that year amid allegations that its owners had misappropriated and misused customer funds.
At the time, reports emerged that Alameda Research, an affiliated trading firm, derived a significant portion of its value from speculative cryptocurrency investments. This raised concerns among FTX customers, who subsequently withdrew their funds from the exchange en masse, leading FTX directly to bankruptcy.
A cautionary tale
The subsequent collapse of FTX had a significant impact on the cryptocurrency market and resulted in a 25-year prison sentence for then-CEO Sam Bankman-Fried.
“These cases serve as reminders of the importance of proactive regulatory compliance and sound risk management. Exchanges must ensure that their leadership adheres to ethical practices, with robust internal controls in place to prevent systemic failures,” said Gate.io’s Lee.
FTX’s sudden dissolution has also raised concerns about the stability and resilience of the broader crypto ecosystem, shaking investor confidence. Lee added that central exchanges should use FTX as a reference point for measures to prevent financial losses for users.
“High-profile incidents on platforms like FTX and WazirX have taught the industry that transparency and strong governance are essential for the survival of centralized exchanges. These events have underscored the importance of maintaining strict separation between user funds and operational funds to prevent misuse and mismanagement. They have also highlighted the critical need for regular proof-of-reserve audits and public disclosures to foster user trust and accountability,” he said.
Situations like these raise questions about the centralized nature of an exchange’s operations. Experienced traders tend to adopt decentralized exchanges to have full control over the keys to their crypto wallets.
DEXs and liquidity issues
A significant disadvantage of DEXs compared to CEXs is lower liquidity. This lower liquidity can result in substantial price slippage, meaning that the actual price at which a trade is executed can deviate considerably from the expected market price.
Since most DEXs have a generally smaller user base and lower trading volumes, it is sometimes more difficult to find immediate counterparties for trades.
“Liquidity is crucial for any DEX, large or small, as it directly impacts trading efficiency, slippage, and the overall user experience. For smaller DEXs, a lack of liquidity can be particularly challenging as it limits active traders and available trading pairs,” said Chef Kids of PancakeSwap.
Since CEXs have access to a larger pool of buyers and sellers, users tend to trade on these exchanges to avoid liquidity issues. Chef Kids argues that DEXs must address this issue to become more competitive.
“For any DEX, more liquidity benefits the entire DeFi ecosystem by enabling better pricing, attracting more users, and ultimately creating a more vibrant and efficient marketplace. This, in turn, strengthens the DeFi space as a whole, driving innovation and growth,” he said.
Addressing liquidity issues is crucial for DEXs to improve their competitiveness and effectively contribute to the growth and development of decentralized exchanges.
Integration hurdles for DEXs
DEXs often present a higher level of technical complexity than CEXs. Using a DEX usually requires some knowledge of blockchain technology, as it involves the use of compatible wallets and proper management of private keys.
This level of knowledge can present barriers for crypto newbies trading on exchanges for the first time.
“The complexity of self-custody wallets and interconnection still presents a significant barrier to the average user, making mass adoption of DEXs challenging. To reach a wider audience, DEXs must simplify and make the user experience more accessible,” said Chef Kids.
This factor alone makes CEXs more attractive to beginner traders.
“CEXs will remain a crucial part of the crypto ecosystem, especially as they drive broader adoption. For many newcomers, centralized exchanges offer the simplest entry point, intuitive interfaces, on-ramps to fiat, and easy onboarding processes,” he added.
By creating supportive educational resources and adoption-friendly initiatives, DEXs can facilitate adaptability for users interested in migrating to decentralized exchanges.
Connecting centralized and decentralized options
Gate.io's Kevin Lee says CEXs can leverage this advantage to face competition from increasingly popular DEXs like hyperliquid, uniswap, and pancakeswap.
“CEXs can lead the way in educating and onboarding users by simplifying access to blockchain technologies and creating intuitive experiences. Collaborations with emerging projects and ecosystems help expand the scope of innovation on their platforms,” Lee explained.
Centralized exchanges must also integrate solutions that meet the needs of investors who prioritize decentralized approaches to trading.
“By integrating hybrid models such as non-custodial wallets and decentralized trading options, CEXs can provide users with a bridge between centralized convenience and decentralized autonomy. Additionally, offering value-added services such as fiat on-ramps, advanced trading tools, staking, and institutional-grade products allows CEXs to serve a broader range of users,” Lee explained.
As both CEXs and DEXs gain popularity, they are likely to learn from each other to overcome their respective challenges. Addressing these gaps will ensure the sustainable growth and long-term success of cryptocurrency exchanges.
The article CEXs and DEXs: what to expect in 2025 according to experts was first seen on BeInCrypto Brasil.