What is cex/dex?

Mariia $uboch
ARTICLE BY
Mariia $uboch
11 MIN READ
Crypto exchanges and trading
28 May 2024
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Life is a numbers game, a balance of assets and liabilities, a force that spurs the pursuit of happiness, of success. It works the same way in the world of finance, where every dollar counts - the stock exchanges are the main engine of this world.

CEX

What is an exchange?

An exchange is a trade organizer where assets such as stocks, bonds, options and others are bought and sold. Exchanges have been around for centuries and have had a huge impact on the development of the world economy.

Then, straight out of the already distant year of 2009, a new player enters this eternal game - cryptocurrencies. And as they gain momentum, there is a need for platforms to exchange them. That's where crypto exchanges come in.

A crypto exchange is just like an exchange, but for trading cryptocurrencies. They allow users to buy, sell and exchange cryptocurrencies such as Bitcoin, Ethereum and many others.
All of this happens in real time, and just like traditional exchanges, prices are set based on real-time supply and demand. However, crypto exchanges differ from traditional exchanges in many ways including the use of blockchain technology, digital wallets and other innovative technologies.

Now let's move on to the next term in our journey - CEX centralized exchanges.

CEX (Centralized Exchanges): What are centralized exchanges

CEX (Centralized Exchanges)

CEX (Centralized Exchange) is a centralized cryptocurrency exchange. It is owned and operated by a centralized organization, usually a company. CEX exchanges were the first type of crypto exchanges, and they still remain the most popular. On CEX, users create accounts and make trades on a platform that acts as an intermediary between buyers and sellers.

What are centralized exchanges

CEX exchange WhiteBIT

At CEX exchange, users can buy, sell, exchange and store cryptocurrencies. The exchanges offer a wide range of cryptocurrencies as well as fiat currencies such as the US dollar, euro, hryvnia and so on.
On such exchanges, trading is done through an exchange stack, which is a table of orders to buy and sell cryptocurrencies. This stack collects all orders for trading the platform's assets.

centralized exchanges

Exchange glass

The determination of asset value is based on the interaction of supply and demand in the market.
When users cannot agree on the price of an asset (when there is no match between the prices at which they want to buy and sell), a market maker enters the process. This can be a major player or the exchange itself, playing the role of an intermediary. The market maker provides liquidity to the exchange, ensuring the consistency of trading activity. Without his involvement, trades could take much longer.

How do centralized cryptocurrency exchanges work?

If you break it down, the workings of CEX exchanges are pretty simple. You just need to create an account, confirm your identity (in most cases), fund your balance with cryptocurrency or fiat money and start trading.

centralized cryptocurrency exchanges

CEX exchanges manage all incoming and outgoing transactions, including the custody of users' assets. This may simplify the trading process for beginners, but it also introduces an element of risk associated with storing assets on the exchange.

CEXs are simple and convenient, but the very idea of decentralization is lost because of them. In CEX, you deposit money directly into the exchange, which means that your funds belong to the exchange wallet, which is simply assigned to you, but the actual owner is the exchange. By depositing money on the CEX exchange you further perform transactions within the exchange. In this case, for example, to make a withdrawal of steiblcoins from the exchange in one or another network, such as TRX, you do not need to have a native token (TRX) to pay the commission, the commission will be withdrawn in the same steiblcoin: the exchange in this case pays the commission in native tokens from their wallets.

Advantages and disadvantages of working with centralized exchanges

Centralized cryptocurrency exchanges (CEX), despite all the decentralization ideals that cryptocurrencies embody, have become popular because of a number of unique advantages.

Benefits of using CEX:

  • Simplicity and convenience: CEXs stand out for their ease of use, and even a novice can easily learn how they work. Register, KYC verification, deposit funds and go ahead and you can trade cryptocurrencies. There is no need to manage your keys, understand the intricacies of wallets or learn the complexities of crypto transactions.
  • Extensive functionality: centralized exchanges provide extensive functionality that varies depending on their scale. Even the simplest ones allow you to transact with cryptocurrency pairs, such as BTC/ETH. Larger platforms expand the possibilities to include fiat/crypto trading pairs, as well as many additional tools: margin trading, staking, pharming, derivatives, cryptocurrencies, and even participation in airdrops or IEOs.
  • Regulation: CEXs vary in their degree of regulation. Some platforms actively seek compliance with local laws and requirements by obtaining licenses and undergoing KYC verification. Verification of personal and banking data is required here, but the more information a user provides, the more options they have. For example, deposit and withdrawal limits.
  • Liquidity: Due to the large number of participants and active trading, centralized exchanges often have high liquidity, which ensures fast order execution.
  • Customer Support: Most CEXs provide customer support services, which makes it easy to resolve user questions and concerns. The user can always contact support to resolve issues.

Disadvantages of using CEX:

  • Centralization: CEX exchanges are run by a centralized organization, which can be a problem for those who value decentralized cryptocurrencies. For example, a centralized exchange may block a user's account or suspend trading of certain cryptocurrencies for some reason.
  • Commissions: CEX exchanges usually charge transaction fees, which can reduce the profitability of trading. Commissions can vary depending on the exchange, type of transaction and trading volume.
  • Regulation: on the one hand regulation is an advantage, but on the other hand it can limit their capabilities, such as the ability to offer certain features or operate in certain countries.

CEX exchanges are a convenient and safe way to buy, sell and exchange cryptocurrencies. However, they also have a number of drawbacks such as centralization, commissions, and regulation. When choosing a CEX exchange, it is important to consider your needs and preferences. If you are looking for an exchange with a wide selection of cryptocurrencies, high liquidity, and a user-friendly interface, then a CEX exchange may be a good option for you. However, if you value decentralization and low fees, then you should consider a DEX exchange.

Examples of centralized exchanges

Whitebit is one of the largest centralized cryptocurrency exchanges in Europe. The exchange offers a wide range of features and tools that make it a convenient and safe place to trade cryptocurrencies. Whitebit supports staking and provides the opportunity to participate in the listing of new tokens. Whitebit is actively developing and attracting the attention of the crypto trading community.

Examples of centralized exchanges

WhiteBIT Exchange

Bybit is a popular centralized exchange specializing in trading cryptocurrency derivatives, particularly futures and perpetual contracts. The exchange offers high liquidity and low commissions, making it attractive to traders. Bybit is also known for its innovative products and active involvement in the community of traders.

centralized exchange

Bybit Exchange

OKX is one of the largest exchanges in terms of trading volume and provides a variety of products, including spot market and futures trading. Options to participate in staking and decentralized finance expand the opportunities for traders on the platform.

What is cex/dex?

OKX Exchange

Binance is one of the most well-known and popular centralized exchanges in the world of cryptocurrencies. Its advantages include high liquidity and an extensive selection of trading pairs. The platform provides a variety of tools such as margin trading and futures. In addition, Binance Launchpad provides the opportunity to participate in investments in new projects.

decentralized exchanges

Binance exchange

How to choose a CEX exchange?

Choosing the right CEX exchange depends on your individual needs and requirements. Here are some factors to consider:

  • Reputation: study reviews and research about different exchanges to learn about their reputation. This can help determine how reliable an exchange is.
  • Security: find out what security measures the exchange has in place. Lack of basic measures such as two-factor authentication can be a negative factor.
  • Services: evaluate the services and features the exchange offers. If you need certain trading tools or want to trade certain cryptocurrencies, make sure the chosen exchange can offer this.

The cryptocurrency industry continues to evolve and CEX exchanges are evolving with it. With that comes new opportunities and challenges. Whether you are new to cryptocurrencies or a seasoned trader, it is important to stay up-to-date with the latest news and trends in this rapidly changing world.

DEX (Decentralized Exchanges): What are decentralized exchanges

decentralized exchange

Decentralized exchanges (DEX) are cryptocurrency trading platforms that are powered by blockchain technology and are not centrally managed. Unlike centralized exchanges (CEX), where the exchange manages users and their funds, DEXs aim to decentralize and provide more direct user participation in the trading process.

DEXs do not have a central server or organization controlling all trading operations. Instead, they are based on a blockchain where participants can conduct trades directly using smart contracts.

Simply put, a DEX exchange is just a platform that connects sellers and buyers directly, and they in turn exchange assets between themselves. At the same time, for example, to make a transaction on such an exchange in one or another network, such as TRX, you, unlike CEX exchanges, need to have a native token (TRX) to pay the commission on your wallet connected to the exchange, otherwise you will not be able to make a transaction.

In addition, DEX users have full control over their private keys and funds as they are stored in their own wallets. This increases security and prevents the centralized threat of hacking.

In some ways, choosing between centralized and decentralized exchanges is like choosing between security and freedom.

Centralized exchanges provide high transaction speeds, ease of use, and value-added services such as leveraged trading, staking, and even borrowing and lending capabilities. They are "one-way doors" for new cryptocurrency users, offering convenient ways to buy cryptocurrencies with fiat money. On the other hand, decentralized exchanges give users full control over their assets and personal information. The idea of decentralized exchanges came from the desire to create a platform for trading cryptocurrencies that would be in line with the decentralization ideology behind most cryptocurrencies. It was a reaction to the vulnerabilities of centralized platforms, such as the risk of hacking, fraud by exchange operators, and the need to hand over full control of one's assets to a third party.

Advantages and disadvantages of working with decentralized exchanges

DEXs have a number of unique features that set them apart from centralized exchanges:

  • Decentralization: DEX exchanges are not run by a centralized organization, making them more resistant to hacking and theft.
  • Anonymity: DEXs often provide a higher level of anonymity as they do not require personal information or KYC verification to trade. KYC/AML verification requests have become an integral part of many exchanges. Exchanges require users to prove their identity before they can start trading on the exchange. For some people, this is a problem as privacy is simply out of the question in such a case. At the same time, if you do not verify your account, you will not be able to access certain features. What should you do if you can't provide the required documents? What if you're worried about a possible leak of sensitive information? That's where DEXs win out as the true guardians of privacy. Decentralized exchanges are accessible to everyone, you don't have to worry about identity verification. All that is required to get started is a cryptocurrency wallet.
  • Security: DEX exchanges use smart contracts to automate trading, which reduces risks for users.
  • Ability to purchase "rare" assets: on decentralized exchanges (DEX), users have a unique opportunity to purchase assets that are often not available on centralized exchanges (CEX). This is because DEXs allow trading from wallet to wallet at once, providing access to a wider range of tokens and cryptocurrencies. DEXs, while not having a central authority, give the ability to trade with a variety of tokens, including those that may be new or not as popular simply by searching for coins by its contract.
  • Opportunities for DeFi: One of the important advantages of decentralized exchanges (DEXs) is their tight integration with the world of decentralized finance (DeFi). DEXs provide direct access to a variety of DeFi products such as liquidity pools, staking, farming, and decentralized loans. In addition, DEXs often become the initial listing venue for new tokens associated with DeFi projects, giving users the opportunity to participate in the early development of projects.
  • Control: users have full control over their funds on the DEX exchange.
  • Low fees: DEX exchanges typically charge lower fees than centralized exchanges.
  • No geographic restrictions: DEXs provide global access to trading and users can participate from anywhere in the world.
  • Resistance to censorship: unlike centralized platforms, DEXs are difficult to block or censor, making them accessible to users around the world.

Disadvantages of using DEXs:

  • Liquidity: one of the main disadvantages of DEX exchanges is their low liquidity. This means that it can be more difficult for users to buy or sell cryptocurrencies at a fair price. The liquidity of DEX exchanges depends on the number of users who provide their funds as collateral to create liquidity. If there are few users on the exchange, liquidity will be low.
  • Difficulty of use for newcomers: for newcomers, using DEX can be difficult due to the peculiarities of working with wallets, smart contracts and the lack of familiar interfaces they are used to on centralized exchanges.
  • Limited functionality: some DEXs may provide a limited set of features compared to centralized exchanges. This may include a lack of margin trading or additional tools.
  • Potential loss of keys: users are responsible for the safe storage of their private keys. If they are lost or compromised, funds may be lost with no possibility of recovery.
  • Lack of customer support: one of the disadvantages of decentralized exchanges (DEX) is the lack of traditional customer support that we are used to seeing on centralized exchanges (CEX). On CEX, users can ask for help with technical support, clarifying information, or resolving issues. However, on the DEX, because there is no centralized organization providing support services, users may find that they do not have direct and immediate access to professional assistance. Answering questions may require researching on their own or reaching out to the community, which can take more time and effort.

If you are looking for an exchange with a high level of security and decentralization, DEX exchange may be a good option for you. However, if you are looking for an exchange with high liquidity and a user-friendly interface, then you should consider a centralized exchange.

Examples of decentralized exchanges

Let's take a look at examples of the most well-known decentralized exchanges:

Uniswap is the largest decentralized exchange that runs on the Ethereum blockchain. It occupies about 40% of the entire cryptocurrency market. The exchange has a fairly simple interface and a wide selection of assets. In addition, users can create their own liquidity pools and exchange cryptocurrencies instantly. Uniswap is also integrated with hundreds of DeFi platforms, allowing users to withdraw funds at any time and manage the exchange with a native UNI token.

Decentralized exchanges (DEX)

Uniswap Exchange

SushiSwap is a fork of Uniswap, which also runs on the Ethereum blockchain. The main feature of SushiSwap is that liquidity providers are rewarded in the form of the SUSHI token.

Examples of decentralized exchanges

SushiSwap Exchange

dYdX is a hybrid exchange that combines elements of centralization and decentralization. This exchange aims to offer users the freedom and transparency typical of decentralized systems, as well as smart contracts. At the same time, it integrates some functions of centralized exchanges, such as the order book.

cex/dex exchanges

Exchange dYdX

PancakeSwap - this exchange operates on the BNB Chain blockchain. The exchange allows trading BEP-20 tokens. Due to the fact that PancakeSwap operates on the BNB Chain, it offers faster transactions and low commissions. The exchange also hosts lotteries for users every 6 hours.

What are decentralized exchanges

PancakeSwap Exchange

1inch is a decentralized exchange that runs on the Ethereum blockchain. The exchange also provides access to a DeFi aggregator. This means that 1inch collects data about other DEXs and the assets on them and offers the user the most favorable ways to conduct transactions.

dex

1inch Exchange

Which type of exchange is best for different purposes: the CRYPTOLOGY team's opinion

The final choice between decentralized and centralized exchanges depends on your individual requirements and preferences. If you are looking for better speed, usability and accessibility, and value the ability to trade a wide range of cryptocurrencies and utilize additional services, then CEX is probably the best choice.

However, if you value your privacy a lot and don't want to entrust your funds to a third party, or if you want to trade cryptocurrencies that are not supported on traditional exchanges, DEX may be your choice.

Basically, the choice of trading platform also depends on whether you are a beginner or an experienced trader, as well as your goals. For those who are new to crypto trading, centralized exchanges (CEX) are the best option. They are easy to use and offer a wide range of features and tools. In addition, users can contact support for help in case of problems. However, centralized exchanges store your assets, which can lead to the risk of hacking or theft. More experienced traders often choose decentralized exchanges, which offer a higher level of security because they do not store your assets. Decentralized exchanges (DEX) are better suited for experienced traders or those looking to invest in new projects with low market capitalization.

Some traders and investors prefer to use both CEX and DEX depending on the specific situation, so you don't have to limit yourself to just one type of exchange. Most importantly, keep safety in mind and always keep your assets in a safe place.

Both DEX and CEX play an important role in the cryptocurrency ecosystem. Both types of exchanges serve different needs and offer great benefits. It is important to remember that technology is still evolving and we can expect new and improved solutions in both categories in the near future.

Frequently asked questions about cex/dex exchanges

What are centralized exchanges (CEX)?

Centralized exchanges (CEX) are trading platforms where all trading, custody of funds, and user management are handled by a centralized company or organization.

What are decentralized exchanges (DEX)?

Decentralized exchanges (DEX) are trading platforms where users can make cryptocurrency transactions directly with each other without having to entrust their funds to a centralized organization.

Which exchanges are best for a beginner?

For a beginner, the most convenient platform for work will be CEX exchange, as it assumes a simple interface, as well as customer support.

Which exchanges are best for buying small-capitalization assets?

For buying new small-capitalization assets, DEX exchanges are best suited, as often such assets are not listed immediately on CEX exchanges, but on decentralized platforms they can be bought simply by contract number.
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Crypto exchanges and trading
What is cex/dex?
Crypto exchanges and trading
What is cex/dex?
Life is a numbers game, a balance of assets and liabilities, a force that spurs the pursuit of happiness, of success. It works the same way in the world of finance, where every dollar counts - the stock exchanges are the main engine of this world.
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