Whether you are an experienced trader or a beginner the terms DEX and CEX must ring your bell. They are the first thing most users look into when they first get into crypto. Even if you’re already familiar with them, this article might give you a good idea of the benefits each solution provides. Let’s debunk these concepts then!
DEX and CEX — the overview
Both types of exchanges are based on the concepts of Decentralization and Centralization.
CEX — Centralized Exchanges — are based on centralization, meaning that there is one central authority that overlooks and validates all the transactions made within a platform.
DEX — Decentralized Exchanges — omits the need for a middle-man, using instead smart contracts to execute transactions.
Differences between CEX and DEX
- User control — CEX limits user control over their coins; users’ funds are kept on the exchange and the platform takes care of handling your private keys. DEX is non-custodial, meaning that there are no central systems where your funds are stored nor are they supervised by the platform. Users are in full control of their crypto and private keys.
- Liquidity — the fact is that CEX emerged earlier than DEX, therefore they have significantly more active users and are more popular among the new ones, who tend to trust their well-proven perennial success. DEX is still quite a fresh concept, which is definitely developing very rapidly, but still, its scale doesn’t much CEX. With a large number of users comes a large amount of liquidity, which can be noticed in the case of CEX.
- Security — due to their security regulations, CEX are more exposed to attacks. The assets and keys are stored in a central system, which attracts hackers. DEX users’ security isn’t defined by the platform, but by their own actions, which if not responsible can put them at risk
- Fees — compared to CEX, DEX don’t involve a middle-man that looks over your transactions, making them able to lower the transaction fees
- User profile approach — as you might realize, the decentralized system might be a bit complicated and overwhelming for new users, therefore they attract more experienced users. On the other hand, CEX is a great solution for crypto newbies, who wish to have a “helping hand” in assisting them with the first steps
- Regulation — centralized exchanges are under government regulations, which means that they can’t stay be greatly affected by the decision of national authorities and can’t provide anonymity — DEX entails both of these benefits
- Functionality — in contrast with DEX, CEX includes a wider variety of functions, such as margin trading, fiat to crypto transactions, off-ramps, and other
DEX vs CEX — comparison
These are the key differences between CEX and DEX. The stated points might give you an idea of which solution you should go to suit your preferences. To help you with that, we stated which one is perceived as a better option for beginners and experienced users. Obviously, there are many more benefits and obstacles that both of the solutions involve related to their specific functions. You can learn about them as you progress with your crypto trading journey and truly dive into cryptocurrency finance.
As a Decentralized Exchange, Invariant is the ultimate choice for experienced traders, looking for a platform with a variety of functions and a user-focused approach. We are excited to see you trading on Invariant!
