CEX or DEX: Which Should Stablecoin Users Pick in a Bear Market?
Recently, Huobi Global announced that Leon Li (Li Lin), who founded Huobi in 2013 and has grown it into a globally renowned exchange, has exited the company, which aroused heated discussion in the crypto industry. As a nine-year-old veteran exchange, Houbi’s development in recent years is not roses all the way. It may be because of regulatory tightening, but it also may be due to DEXs, the emerging narrative in the market. What has Huobi been through these years? What will happen with its new ownership in place? To stay with DEXs or move to Huobi? That is a question for users. The content below may offer some inspiration.
With the rise of DeFi and DEXs such as Sushiswap and Curve establishing their market presence in 2020, users have turned their eyes from CEXs to DEXs, which live up to people’s expectations about decentralization. Are CEXs only sitting ducks when faced up with challenges? In this article, Truly will walk you through the differences between CEXs and DEXs in aspects such as security and user experience, so that stablecoin holders can make well-rounded decisions and grab a slice of the cake even in the bear market.
The fundamental difference between CEXs and DEXs lies in whether they are secured by blockchain technology. DEXs execute transactions through on-chain smart contracts and realize data decentralization whereas CEXs carry out trade off-chain with a governance model similar to conventional companies.
Centralized Exchanges (DEXs)
Trading on CEXs is similar to that in banks: users deposit their assets into exchanges, complete crypto-to-crypto trading with the exchange’s endorsement, and withdraw the assets to their wallets. Major centralized exchanges such as Binance, Huobi, OKX, and Coinbase require users to complete KYC verification, that is, to upload their personal ID information, before they can start trading. A report by global accounting firm KPMG shows that CEXs are more prevalent than DEXs as of February 2, 2022. On CEXs, users’ assets are kept in the exchange’s wallet, and once accidents occur, almost all users would suffer losses. This year, the waning of CeFi platforms such as Celsius and BlockFi further indicates the risks entailed by centralized finance.
Decentralized Exchanges (DEXs)
According to the latest data on DefiLlama, the TVL of DEXs in the crypto world has reached $23.55 million. By applying to DEXs or importing their wallets, users obtain addresses for trading with DEX smart contracts. But either way, they keep their own private keys and their addresses, so they are in complete control of their assets. The decentralized servers of DEXs enable transactions of many trading pairs to be executed at a low cost, significantly reducing the risk of hacking and further ensuring the security of DEXs as they can hardly become inaccessible due to server failure.
Truly’s advice: If you prefer easy-to-use trading platforms and to have your assets administered by regulated platforms, CEXs can be your top picks; if you feel more assured to hold your assets in wallets, you should go for DEXs.
CEX’s UI is straightforward and friendly even for beginners. Unrestrained by the blockchain mechanism, nodes on CEXs do not need real-time updates, leading to faster transactions and easier access to crypto trading on CEXs, which has attracted many investors.
All transactions on DEXs are executed on-chain and must be verified by miners, which naturally affects the speed of transactions, especially during traffic congestion. However, most DEXs do not require users to follow KYC or AML policies, nor do they require users to deposit and withdraw on the platform. Instead, users can start to trade once their wallets are authorized. DEXs are also known for their fast listing. Users can trade newly listed tokens deployed on the same network with the DEX once the DEX enables functionalities such as whitelisting, accessing more crypto trading earlier than non-DEX traders.
Truly’s advice: If you are new to the crypto world, you may choose CEXs for faster onboarding; If you already know CEXs well, you may use DEXs for a fresh experience.
CEXs offer users a variety of trading options, including spot, margin, derivatives, staking, stablecoin investment, and margin lending. In this bear run, stablecoin investors may earn a higher yield by choosing stablecoin investment products on popular CEXs.
In contrast, DEXs concentrate more on providing products and services in a single area, such as spot, margin, or futures contracts. Besides, these platforms normally allow users to participate in staking and DAO governance and access more DeFi products. DEXs generally fall into three categories: automated market maker(AMM), order book DEXs and DEX aggregators. While they are built upon different principles, users can trade crypto assets via their smart contracts. (We won’t dive deep into the intricate details here. If you want to learn more, do leave us a comment!)
According to the statistics of the top 60 DEXs by TVL provided by BBNews, five trends can be summarized in the DEX field, one of which is that platforms dedicated to stablecoin and derivative trading hold strong growth potential. As a leading stablecoin trading protocol, Curve tops the chart of DEXs by TVL, offering stablecoin holders an excellent opportunity to swap between different types of assets with low slippage and earn rewards from liquidity mining!
Stablecoin TUSD holders can deposit it to the TUSDFRAXBP and TUSD+3Crv pools on Curve to enjoy APYs close to 5% and rewards of platform tokens!
Truly’s advice: Having learned about the distinct features and characteristics of CEXs and DEXs, users are advised to choose the ones that best match their investment strategies. But what matters most is that users must fully comprehend the rules of various earning and liquidity incentive campaigns before they decide to participate. And bear in mind, jumping on the bandwagon is certainly risky in the current bear market.
To sum up, the comparison in security level, user experience, and platform functionalities of CEXs and DEXs indicates that they fit into the crypto market with their completely different purposes and business philosophy. CEX is service-oriented: it aims to provide more features and easy trading experience for users and to attract investors to the crypto industry by committing funds and advancing technologies. DEX, on the other hand, is tech-driven: it hopes to draw in bold and unconventional investors with a plethora of smart contracts and a diversified ecosystem.
The crypto industry is evolving non-stop, with project teams innovating all the time to make a breakthrough. Both centralized exchanges(CEXs) and decentralized exchanges(DEXs) play vital roles in the crypto space. For many long-term users of Huobi, Li Lin leaving the company marks the end of an era, but it may also be a prelude to a new age for even more people.
Find us on @tusd.io | Linktree