CEX vs DEX: What Should You Trade on?
Crypto exchanges are online platforms where you can buy, sell and trade crypto assets. Typically, there are two types of crypto exchanges: centralized and decentralized. The main difference between these two is that CEXs have a central authority that controls and monitors all transactions, while DEXs don’t have any third party; buyers and sellers directly transact with each other.
This article will discuss what CEX & DEX are, the features and differences, and understand which platform is best suited for crypto trading.
What is CEX?
Centralized exchanges (CEX) are crypto exchange platforms owned by single organizations that act as the central authority monitoring the transactions and as a third party matching sellers with buyers via order books and algorithms.
Users must register and verify themselves with the platform before they can start trading on it. Verification allows for better customer support and a higher withdrawal quota.
A CEX looks over the entire trading process. Everything happens through the centralized exchange’s internal system when you deposit crypto assets, trade them for other assets, or withdraw them again. They provide liquidity, security, and an escrow system to help prevent fraud.
Wherever you want to trade crypto assets through CEX, you will have to transfer assets into a wallet connected with the platform itself rather than using your wallet. The CEX platforms hold your private keys for you.
CEXs like LBank, one of the top crypto exchanges which is more popular among crypto traders for providing wide range of crypto trading pairs. They are easy to use, and most CEXs follow security and investor protection compliance to ensure a safe and secure trading experience for their users. However, transactions on a CEX do not occur via a blockchain.
What is DEX?
DEXs are fully transparent since transactions remain between buyers and sellers, and they don’t have to rely on third parties to execute trades. In decentralized exchange platforms (DEX), users’ funds are not held by decentralized exchanges. Users can hold and handle their assets through their wallets.
Blockchain technology is used to connect buyers and sellers directly. Decentralized exchanges usually employ smart contracts to execute trading orders, meaning there’s no chance of manipulation or error.
DEXs can operate with or without order books. If they have an order book, it’s usually just a smart contract that tracks buy and sell orders. These orders are just suggestions that traders send to the network. DEXs store no user data, so there’s no central point of failure or single point of attack.
While CEXs require traders to trust the platform with their funds, decentralized exchanges let you retain control of your funds at all times, but they may take longer to locate trades. Lately, DEXs have been at the receiving end of several exploits and hacks because they are open-source code and prone to external vulnerabilities. UniSwap, SushiSwap, PancakeSwap, etc., are a few examples of DEXs.
Difference between CEX & DEX
- CEXs require your full trust as buyers and sellers. They handle the overall trading process, so you as a customer need to put your full trust in the exchange platform.
- DEXs, on the other hand, have no third party controlling your trading process. Instead, DEXs provide a platform for buyers and sellers to meet and perform the trade according to their choices.
- CEXs make trading more convenient and fast. You can sign up and deposit funds in minutes, which is usually very straightforward. This is because the process does not take place on the blockchain network. There is no need for in-real-time updates to the network nodes.
- With DEXs, you need to invest some time before doing trading. DEX’s system is more complicated compared to CEX. You also have to transfer funds to a wallet and connect your wallet to the decentralized exchange.
- CEXs have a lot of legal requirements since they are a centralized platform and come under government governance. For example, KYC is essential to prove your identity for security purposes.
- Laws and regulations do not completely bind DEXs as they are decentralized and are made to keep third parties such as governments out of transactions, directly connecting buyers and sellers no matter where they are.
- CEXs requires that you upload and store your personal information on the exchange platform when you deposit your money.
- DEXs do not require your personal information. They provide anonymity, and transactions are made through a digital wallet that stores your assets and is unique to you.
- The transaction fees for CEXs are usually fixed at a specific amount and are considerably cheaper.
- DEXs transaction fees are, most of the time, relatively higher compared to CEX.
- CEX is more user-friendly and easy to use as all transactions occur on one platform.
- DEX platforms can be a bit complex and require that you know how the platform works.
Which one to use for executing trades
CEX and DEX exchange platforms give buyers and sellers a safe and secure space to buy, sell and trade crypto assets. Both have pros and cons, and many factors go into deciding which exchange platform is suitable for your needs.
Overall if we observe the information mentioned above, newcomers in the crypto market will have an easier time with CEX as the platforms are fairly easy to use compared to DEXs. If you are looking for a more secure place for trading and are experienced in the market, DEX is the best way.
CEXs have lower transaction fees than DEXs, so if you are looking to trade daily and a fairly large amount of money, then CEXs are better for you.
CEXs are not completely anonymous, and you usually do not have full ownership of your funds during the trading process. If you want anonymity and complete control of your funds, DEXs are a way better option than CEX.
Overall, deciding which platform to trade on depends on your needs and wants. Both have pros and cons, so properly researching them and understanding their features and the risk that both types of exchange platforms carry is the most important factor.
If you want to start your crypto journey but do not know which exchange platform to use, head over to LBank — one of the best options with its user-friendly interface and a wide range of crypto assets available on its platform.