CEXs and DEXs are two types of exchanges or cryptocurrency exchange platforms. Both allow users to buy, sell and store cryptocurrencies, but they have different features that make them more or less convenient depending on each user's needs and preferences.
What is a CEX?
A CEX (Centralized Exchange) is a centralized exchange that provides cryptocurrency exchange services to registered users. Its main service is usually connecting buyers and sellers in an order book, although it can provide other crypto products to its verified users, such as futures, options, margin trading, etc. A CEX works similarly to a traditional stock exchange, with an entity that manages the exchange and charges a commission for each transaction.
To use a CEX, the user must create an account and verify their identity in accordance with local regulations. The exchange will also be in charge of custody of the assets you want to trade on the platform after you deposit them in your CEX account. This means that the user must trust the exchange to protect their funds and personal data.
What is a DEX?
A DEX (Decentralized Exchange) is a decentralized exchange that uses on-chain smart contracts to offer its exchange services. In most cases, users trade tokens in liquidity pools, with liquidity contributed by other users in exchange for swap fees. On a DEX, there is no registration required, meaning they are open to anyone with a wallet and cryptocurrencies.
A DEX works through smart contracts, which are self-executing pieces of code on a blockchain. An entity or project can create and help run a DEX, but in theory it can run on its own as long as people provide it with liquidity. This implies that the user does not depend on an intermediary to carry out their operations, but rather interacts directly with the chain.
How are a CEX and a DEX different?
CEXs and DEXs have advantages and disadvantages that make them more or less attractive depending on the user's profile and objective. Some of the main differences are:
• Security: CEXs are more prone to cyber attacks, theft and fraud, as they store user funds and data on centralized servers. DEXs are more secure as users' funds and data stay in their wallets and on-chain, making it difficult for third parties to access them.
• Privacy: CEXs require users to register and verify their identity, which involves sharing personal and financial information with the exchange. DEXs do not require any registration or verification, allowing users to maintain their anonymity and freedom.
• Speed: CEXs are faster than DEXs as transactions occur off-chain and are confirmed instantly. DEXs are slower than CEXs as transactions occur on-chain and depend on network speed and congestion.
• Liquidity: CEXs have more liquidity than DEXs, since they have a greater number of users, trading pairs and operating volumes. DEXs have less liquidity than CEXs, since they depend on the supply and demand of the users who provide liquidity to the pools.
• Variety: CEXs offer a greater variety of cryptoassets and financial products than DEXs, as they can list any token that meets their criteria and regulations. DEXs offer a smaller variety of cryptoassets and financial products than CEXs, as they can only list tokens compatible with the chain on which they operate.
