Decentralized exchanges (DEX) and centralized exchanges (CEX) are two types of trading platforms that allow users to buy, sell, and trade cryptocurrencies. DEX platforms operate on a decentralized network driven by users and liquidity providers, without any intermediaries, while CEX platforms operate on a centralized network and have a central organisation or institution acting as intermediaries, so the decision making is centralized. DEX platforms are available on various blockchain networks, including Ethereum, Binance Smart Chain, and Polygon, while CEX platforms are typically available on their own centralized networks. Both DEX and CEX platforms require a cryptocurrency wallet to participate, and users can join with any wallet that is compatible with the platform.
Governance tokens are a key feature of many DEX platforms. These tokens allow holders to vote on platform changes and participate in platform governance. Some examples of governance tokens include Uniswap’s UNI token and SushiSwap’s SUSHI token.
In this two-part article, we would like to help you become more familiar with CEX and DEX platforms by highlighting their differences.
Decentralization: The main difference between DEX and CEX platforms is their level of decentralization. DEX platforms are completely decentralized, meaning that all trades are conducted on a peer-to-peer basis without the need for a centralized intermediary. CEX platforms, on the other hand, rely on a centralized intermediary to facilitate trades.
Operations: DEX platforms typically have a slower order execution speed compared to CEX platforms. This is because DEX platforms rely on a network of nodes to validate trades, which can take longer than the centralized order matching system of CEX platforms. CEX platforms also work with market makers and all trading happens through order books, while DEX operations are managed through smart contracts, and marketing making is based on an automated market making algorithm, so instead of P2P trading it’s a Peer-to-Pool system.
Transparency: DEX platforms are generally more transparent than CEX platforms. This is because DEX platforms operate on a public blockchain, allowing anyone to view the entire transaction history. CEX platforms, however, often have opaque order matching systems and trade history that is only available to the platform operator.
Usability: CEX platforms are generally considered to be more user-friendly than DEX platforms. This is because CEX platforms are designed to be more intuitive and accessible to a broader range of users, while DEX platforms can be more complex and require a higher level of technical expertise to use.
Custody of Assets: DEX platforms offer users complete custody over their assets, as trades are conducted directly between users’ wallets. CEX platforms, on the other hand, require users to deposit their assets into the platform’s custody before trading.
Speed and Price Volatility: DEX platforms are often subject to higher levels of price volatility compared to CEX platforms. This is because DEX platforms rely on a network of nodes to validate trades, which can cause delays in price updates and lead to price discrepancies. CEX platforms, on the other hand, have faster order execution and are less prone to price discrepancies.
Be sure to check out our next article on the subject to learn more about CEX and DEX platforms.