CEX Vs. DEX — What’s The Difference?

The exact boundaries between DEX and CEX are often not crystal clear, and there are numerous crypto exchanges that mix DEX principles with CEX principles. These are sometimes also referred to as CeDeFi ecosystems. However, CEX platforms are considered to be dominant, even in the crypto industry, but both CEX and DEX have clear and unique advantages, so which one is the right choice for you often depends on your personal preferences. In this article we are going to observe the differences between these two exchange types and check out the pros and cons of each. 

DEX explained

DEX is a decentralized exchange working right on a cryptocurrency with no central governing institution. 

The main advantages of a decentralized exchange are undoubtedly privacy and full control over your crypto. The best DEX exchanges are those that operate with non-custodial wallets, giving you direct access and full control over your funds. A true DEX does not take part directly in the transaction afterwards and neither does it at any moment have any ownership over your money. This alone is an advantage that makes many privacy-conscious people choose a DEX, instead of a CEX, whatever the disadvantages might be. If a non-custodial DEX faces a crash or some kind of DDoS attack, your coins are still intact in your own wallet, but if a CEX fails, chances are that most of your crypto assets are gone forever. 

Privacy comes at a cost however, as smart contracts are still not as secure as doing transactions with third party involvement. Furthermore, DEX often offers weaker liquidity than CEX. Loaning tokens through a DEX also tends to have higher interest rates than doing the same through a CEX. The vast majority of DEX users will never experience anything like a hacker attack. Decentralized exchanges might offer direct ownership over your tokens and more privacy, and centralized ones are more vulnerable to hacks.

CEX explained

CEX is a centralized crypto exchange running on its own hardware. This type of exchange is always operated via an external party.

The main advantages of a , centralized exchange all have to do with liquidity and security. The involvement of a large third party or potentially multiple large third parties as men-in-between makes a lot of things easier when it comes to dealing with fiat money or crypto. Liquidity, which has been such a crucial question of DEX, is absolutely no issue when it comes to CEX, since the unending chain of interconnected third parties that are involved gives access to a virtually infinite amount of money. On the downside, the more third parties that are involved in any transaction, the more people who will want a share. A share that they will take in some form, whether obvious or not.

Constant liquidity however does not only mean that you will always have access to money. It also means that you can buy and sell at any given time. There are even third parties that act as liquidity providers when it comes to a CEX. Their sole purpose is to ensure that all users can sell and buy tokens, shares or other financial instruments, whatever they may be, at any time. This, combined with the fact that when it comes to a centralized exchange you almost always have a custodial wallet means that you do not even have to wait until the actual transaction is completed in the background. The CEX will just immediately credit the tokens in your “virtual wallet” within a second. This is a huge advantage, and is essential for some forms of trading, or moving money quickly, yet, having a custodial wallet can also be a privacy issue to other people.

Overall features

Let’s make a conclusive statement over the advantages and disadvantages of both exchange types. 

CEX

Pros:

- CEX is able to perform operations with fiat.

- High liquidity.

- CEX has a great capabilities for trading.

Cons:

- There’s no access to private keys.

- Security risk as CEX are more susceptible to hacking threats.

- Verification requirement.

DEX

Pros:

- Only the owner has access to assets and private keys.

- Users get an access to a wide range of coins to exchange.

- Users stay anonymous while exchanging.

Cons:

- DEXs do not support fiat.

- Liquidity is lower than on CEX.

Conclusion

The basic idea is that CEX platforms are usually easier to use, better for trading and less prone to cyberattacks, while DEX platforms offer more privacy and direct ownership over your crypto and can also provide access to high-return (but sometimes also high-risk) yield farming. 

But as always, the choice is completely up to you. Stay tuned and make sure to learn more about Crypto World with SimpleSwap Blog!