CEX vs DEX
Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) are two different types of platforms where users can buy, sell, and trade cryptocurrencies. To learn more about exchanges click here. The primary distinction between them lies in their structure, control, and the way they handle user funds and transactions.
Comparison | Centralised Exchange (CEX) | Dentralised Exchange (DEX) |
Control | CEX has Centralized Control
CEXs are operated by centralized entities that control the platform, its order books, and the custody of user funds. Users need to create accounts on these platforms to trade. | DEX have Decentralized Control
DEXs operate on decentralized blockchain networks, and there is no central authority controlling the exchange. They use smart contracts to facilitate trades. |
Anonymity | CEX requires you to create an account and KYC
Centralised exchanges are often licensed by different regulators
Users typically need to go through a Know Your Customer (KYC) process to create accounts on CEXs.
This involves submitting personal identification documents to comply with regulatory requirements. | DEX users are anonymous
Users on DEXs connect to the smart contract using their non-custodial wallets. An example of non-custodial wallet is Xellar |
Custody | CEX Custody’s your funds.
On centralized exchanges, users usually deposit their cryptocurrencies into wallets managed by the exchange. The exchange acts as a custodian of these funds. | DEX is self custody
In DEXs, users retain control of their private keys and funds. When you connect to a DEX through wallet connect, your funds stay in your wallet until it is exchanged. |
Architecture | CEX uses Order Matching
The exchange facilitates order matching, meaning it pairs buyers with sellers to execute trades. The order book is maintained centrally by the exchange. | DEX uses Order Book and Smart Contracts
DEXs use decentralized order books or automated market makers (AMMs) based on smart contracts to facilitate trading without a central entity controlling the process. |
Liquidity | Centralized exchanges are known for their fast transaction speeds and high liquidity. Because they hold the liquidity of they customers allowing them to quickly match pairs on the exchange | DEXs might face challenges related to speed and liquidity compared to centralized exchanges as it depends on the amount of liquidity provided by the ecosystem.
However, advancements like layer 2 scaling solutions aim to address these issues. |
Fiat integration | Many centralized exchanges allow users to trade cryptocurrencies directly against traditional fiat currencies. | DEX normally do not have fiat integrations.
Fiat integrations are normally integrated with the wallet provider. See here for more info. |
Compliance | CEXs often comply with regulatory requirements, including anti-money laundering (AML) and other financial regulations. | DEX does not need to comply with local enforcements |
Cross-chain | All CEX allows for cross-chain trading | Some DEXs support cross-chain trading, allowing users to trade assets from different blockchain networks directly. |
The choice between a centralized or decentralized exchange depends on individual preferences, regulatory considerations, and the specific use case. Centralized exchanges often provide a more user-friendly experience, while decentralized exchanges appeal to those seeking greater privacy, control, and alignment with the principles of decentralization.
What is Xellar?
Xellar is the next generation non-custodial application, integrated into the DeFi world. Download Xellar on the App Store & Play Store. Integrate with Xellar’s cold wallet technology.
