Recent legal changes tightening and opening up Blockchain exchanges in major countries like China and the United States are showing positive dynamics for cryptocurrencies. China recently announced the market for over 500,000 blockchain experts and the establishment of digital asset exchanges, signaling potential explosive developments for crypto exchanges in the future.
The ever-evolving topic of the differences, advantages, and disadvantages of Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) remains relevant for investors. Here are the key points:
CEX:
Exemplified by platforms like Binance, OKX, Coinbase, Bybit, BitMex, Deribit.
Fast transaction speeds and lower fees.
Uses Centralized Limit Order Book (CLOB).
Users deposit funds onto the exchange, subject to high supervision.
Exchange-created wallets, investor assets depend on the exchange's existence and policies.
Large user base, resembling traditional financial exchanges.
Risks include loss of liquidity, hacking, and the exchange controlling the game.
DEX:
Exemplified by Uniswap, PancakeSwap, Maker, DBOE.
Utilizes Automated Market Maker (AMM) methods, e.g., PancakeSwap.
Some DEX, like DBOE, use Centralized Limit Order Books.
Users control their wallets and assets, often prioritizing anonymity.
Reduces risks from the exchange, but users must protect against personal errors.
Slower than CEX, higher gas fees for transactions, especially on older chains.
Complex deposit and withdrawal processes, susceptible to personal scams.
As of now, CEX leads due to familiarity, user-friendly interfaces, and faster transactions with lower fees.
However, DEX excels in security and aligns with the decentralized nature of Web 3. The shift from Web 2 to Web 3 and recent incidents like the FTX collapse have increased DEX's appeal.
With the introduction of Layer 2 and Layer 3 solutions, transaction speed and fees for DEX are expected to improve, making them more competitive. Traditional centralized exchanges may act as a stepping stone for the transition to decentralized exchanges. Investors may prefer connecting and profiting through a more secure and self-controlled approach.
The narrative may shift in the next 2-3 years as technology stabilizes in terms of speed, fees, and policies. During this period, using assets interchangeably between CEX and DEX seems reasonable.