CEX vs DEX: What are the differences?

Peiyao Qiu
December 21, 2022

This is an article for beginners in crypto trading to understand the differences between Centralized Exchange (CEX) and Decentralized Exchange (DEX) and that explains how Securd comes into play.

In the jargon-filled crypto world, CEX and DEX are likely two of the many words that you encounter often. Let’s start with a quick explanation of what each term refers to.

Centralized Exchanges (CEX)

A Centralized exchange, also know as a “CEX”, is a platform that operate through central  infrastructure to match a buyer and a seller in a transaction. You can deposit your coins with them, you can use their platform to swap fiat into crypto, you can swap between different cryptos, or you can use their other financial services.

Examples of centralized exchanges include Binance, CoinBase, or FTX (yes… the one that has recently declared bankruptcy).

Here’s a diagram that explains the user journey on a CEX in a simple glance:

Decentralized Exchanges (DEX)

A Decentralized Exchange, also known as a “DEX”, settles crypto trades using smart contracts instead of relying on a centralized party. One of the most popular model used in DEX nowadays is the AMM model that facilitates price discovery of cryptos and their exchanges without a middleman.

Examples include:

  • Uniswap & SushiSwap on the Ethereum blockchain;
  • Vortex or QuipuSwap on the Tezos blockchain
  • Trader Joe on the Avalanche blockchain
  • And many more!

Here’s a diagram that explains how it works for users on the AMM DEXs:

DEX vs CEX: what are the differences?

You might already have a rough understanding of the first differences between DEX and CEX based on the explanations above. But here’s a more complete list:

1. Control of Funds:

When using a CEX, you are essentially locking your crypto assets into a hot wallet owned by the exchange. With a DEX, all you need to do is connect your crypto wallet to the protocol. The DEX does not have custody over your assets when you're trading.

Remember? Not your keys, not your coins!

2. Requirement of crypto wallet

While you definitely need a crypto wallet to use DEX, you don’t necessarily need it to use a CEX.


3. KYC:

Everyone is forced to go through the KYC (”Know-your-customer”) process on a CEX by providing ID proofs, while there’s no KYC process on a DEX - all you need is a crypto wallet.

4. Liquidity:

Centralized exchanges have been known to provide greater liquidity and thus higher throughput. However, as we recently witnessed with the FTX crisis, the presumed high levels of liquidity don’t always stand. On the other hand, it’s still true that most decentralized exchanges lack liquidity, and that’s why many DEXs are willing to handsomely reward liquidity providers.

5. Transaction Fees:

CEXs collect standard trading fees, while the transaction fees of a DEX depend on the chain it resides on. Uniswap, which runs on Ethereum, can cost you $60 depending on network congestion whereas Tezos only charges pennies per transaction.

6. User experience:

Unlike CEXs, DEXs tend to be less user friendly to newcomers. Since there is no central authority or big company to put funds into the user experience side of things, decentralized exchanges tend to be less slick than their huge, centralized counterparts, and can be a steep learning curve if you’re new to the space.

7. Fiat on-ramp:

Unlike CEXs bridging fiat and crypto, DEXs don’t have the infrastructure that accepts payment in Fiat yet, which further increases entry barriers.

8. Range of available cryptos:

With DEXs, there's no gatekeeper, and literally anyone can create a new liquidity pool.

So if you're aping into an obscure coin you can't find on your CEX, chances are you'll find it on a DEX.

Securd: lowering entry barriers to DEXs through efficient UX

While DEXs provide many advantages such as self-custody, a wider range of assets, no KYC requirements (you’re identified by your wallet) and lower transaction fees, one of the key problems that have yet to be solved is the user experience.

With Securd protocol, we aim at lowering entry barriers to DEXs through better UX. Here’s the user journey that Securd is working on:

  1. Deposit: Open a Securd Account in one click and deposit your cryptos
  2. Earn: Securd collects interests from Liquidity providers through overcollateralized loans
  3. Relax: Just watch your balance growing as your gains are automatically reinvested in your account
  4. Withdraw: Whenever you decide, withdraw your funds without any penalty

To learn more about liquidity providing, you can check out this article on PyratzLand.

Securd is launching on Tezos in early 2023 and will begin its multi-chain development shortly after. Follow Securd Twitter and join Securd Community to stay tuned!

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