To trade digital assets, users in the crypto world must know how to choose whether to use CEX (centralized exchanges) or DEX (decentralized exchanges).
The primi are usually more liquid and structured, while the secondi offer a wide variety of choice and autonomy.
In this article, we look at their main characteristics and explain in which specific cases it is advisable to use one rather than the other.
All the details below.
The main differences between CEX and DEX crypto
Nowadays, to be able to trade crypto, there are essentially two types of digital platforms, CEX or DEX.
The CEX, also known as centralized exchanges, are brokers that act as trusted intermediaries between buyers and sellers in a range of crypto markets.
Their system for matching bid and ask is the order book, a database in which open buy and sell orders are entered.
They are managed by a single identity, which holds control of all the private keys of their clients’ wallets
They normally feature a simple and intuitive front-end, a wide range of financial services, and customer support capable of addressing any access issues.
They generally offer more liquid markets compared to other centralized solutions and have an onboarding system through fiat currencies.
The most well-known CEX in the crypto sector are Binance, Coinbase, Bybit, Bitget, and Okx.
On the opposite side, instead, we find the DEX. These are trustless decentralized platforms that leverage blockchain technology to connect two users in a negotiation.
In place of the order book of CEX, these infrastructures use the AMM (Automated Market Makers) model, which is based on the equation x * y = k.
The meaning is quickly explained: x represents the quantity of a token in the liquidity pool, y the quantity of the other, while k is the fixed constant of the liquidity.
DEX do not have a fiat onboarding gateway and can only be used with crypto currencies. They do not have an entity that controls the private keys of the users who use them, but they operate in a totally decentralized manner.
Their markets tend to be less liquid than CEX, but sometimes they might be the only possible solution to trade a coin.
The most well-known in the sector are Uniswap, Sushiswap, Curve, PancakeSwap, and GMX.
The market shares of CEX on spot volume
At first glance, the superiority of DEX over CEX might seem obvious, given the decentralization component for trustless crypto exchanges.
In fact, decentralized exchanges allow users to always be the owners of their own assets, without the need to entrust private keys to a central entity.
Using a DEX does not involve, for example, the risk of getting caught in frauds like those of FTX or Mt. GOX.
These protocols have a wide choice of markets to trade and offer a more smart and flexible operation.
On Uniswap for example, potentially infinite crypto can be exchanged, while on Binance there is a limited number of trading-pair.
Despite this, nowadays the most used platforms for trading in the crypto world are precisely the CEX.
Nowadays, in fact, only 15% of spot trades occur on DEX while the vast majority is processed through CEX.
This situation is so pronounced due to the greater convenience of centralized platforms rather than decentralized ones.
Generally, less experienced users use CEX as real wallets, where they hold their coins long-term.
When is it convenient to use a centralized exchange?
Sometimes it is convenient to use a CEX rather than a DEX, despite having to deal with a centralized reality.
First of all if you are beginners, it is advisable to start with a platform that is easy to use before moving on to trustless tools.
Then for crypto trader professionisti the use of a CEX is essential, as it usually involves paying much lower trading fees.
On most centralized brokers, the fees amount to 0.1-0.2% per trade, while on DEX they even go above 0.5%. (+ the gas fees of the blockchain)
Furthermore the whales must have access to a liquid market where they can execute large trades, such as those on Binance and Coinbase.
Sometimes on CEX there might also be a favorable spread compared to the prices on the DEX, and therefore one could take advantage of the arbitrage opportunity.
In the rest of the occasions, however, the use of a CEX remains exclusively linked to the convenience offered, without compensating for the potential disadvantages.
It is wrong to consider a CEX as a wallet, and it should rather be used for its general function, namely an exchange desk.
The general recommendation is to delve into the workings of the Web3 world and start practicing self-custody of assets before moving on to using DEXs.
Although there are indeed fewer features and higher costs for access, decentralized exchanges leverage the heart of blockchain technology.
Knowing how to interact with these decentralized platforms ensures us a wide range of earning opportunities, including airdrops and yield farming.
