CEX and DEX what are they? 🤔
Oh well, CEX connotes Centralized Exchange and DEX connotes Decentralized Exchanges respectively.
In this brief article, we will break them down to your best understanding 🙂
What is a CEX?
CEX simply means Centralized Exchange (s). This connotes that it’s controlled by some governing entities. Every transaction done on a CEX is highly monitored by the governing bodies regulating the exchange. CEX are Cryptocurrency banks. The first step in using CEX involves you creating and account that is recoverable, in case you forget your login details. Secondly, you’ll have to go through a KYC procedure before you start trading on the exchange. Basically everyone using a centralized exchange is doxxed.
Notable CEX you should look out for :
@binance 🔗 https://www.binance.com/
@FTX_official 🔗 https://ftx.com/
@MEXC_official 🔗 https://m.mexc.com/
@bybit_Official 🔗 https://www.bybit.com/
@cryptocom 🔗 https://crypto.com/
Centralised exchanges act almost as traditional banks. You can deposit your coins with them, some like @binance and @cryptocom offer cards that allow you to spend your crypto at physical shops, you can utilise their trading platform to make investments and they offer loans and a host of other financial services like DeFi (staking, launchpad, launchpool etc).
On Centralised exchanges, you deposit your coins into their central wallet, which brings all assets deposited onto the platform under the central control of the exchange’s operating company. Trades of the deposited coins are then recorded and settled on internal systems.
Centralised exchanges requires their users to doxx or identify themselves by passing the KYC (know your customer) process. Which in a way isn’t a counter to the whole Crypto idea of being decentralized.
CEXs have been crucial in the development of the modern crypto economy and security. They have made cryptocurrency trades reliable and this stability has been highly beneficial to the space.
Moving on, Let’s look at DEX.
Dex simply means Decentralized Exchange. These types of exchange platforms are not controlled by a single entity who acts as a middleman or intermediary.
They are protocols that use smart contracts to settle peer-to-peer transactions. Decentralized Exchanges are big on Decentralized Finance (DeFi) products like farming, staking etc.
In DEX, you do not have to pass through a KYC procedure to interact with the exchange and, as such, you can retain a high degree of anonymity which may not be totally beneficial sometimes as there have been cases of data breaches.
Decentralized exchanges operate by linking a user’s cryptocurrency wallet to the protocol, thereby giving the protocol permission to see the balance of the wallet and asking for further permission to transfer the coins within. The user can then use the protocol’s UI to select a cryptocurrency they wish to buy. Provided there is enough liquidity for the deal to take place, the protocol will ask the user for final permission, listing the desired trade size, trade fee, and transaction processing price, before closing the deal.
Some notable DEXes included :
@uniswap 🔗 https://uniswap.org/
@1inch 🔗 https://1inch.io/
@PancakeSwap 🔗 https://pancakeswap.finance/
@Apeswap 🔗 https://apeswap.finance/#/swap
@WigoSwap 🔗 https://wigoswap.io/
DEX have a couple of advantages and disadvantages. Some of them include:
- Security: Because DEXs don’t have control over your coins (or store your wallet private key) it’s difficult for hackers to steal your coins.
- Because of its low liquidity, algorithm (automatic market makers) calculate the fair price of assets and all transactions are recorded on the blockchain. Thus, it is difficult for human market-makers (otherwise known as ‘whales’) to manipulate the market.
- No need for know your customer verification (KYC). As mentioned above, no KYC is required for DEXes so users can retain their anonymity.
Some disadvantages include,
- Complexity — DEXs are complex to understand for newbies. Basically, they have an unfriendly interface
- Because anyone can list a token for exchange on a DEX, ‘rug-pulls’ are possible. This happens when a whale provides liquidity for a new crypto market. They target the coins or tokens to get enough liquidity from sales operations, then they remove all market liquidity (pulling the rug from under the market). This leaves the buyers of the token unable to sell. Invariably meaning that they have literally lost their investment.
- Liquidity providers can sometimes get back less than what they invested if the price of the coin/token they are providing liquidity for takes a nosedive trend.
Closing thoughts.
CEXs and DEXs both allow for the trading of coins although they do so in notably different ways. CEXs are centralised entities that provide a middleman service between users, while DEXs rely on smart contracts to perform their trades. Centralised exchanges provides a safety net for users and are relatively newcomer-friendly- while decentralised exchanges simply provide users with the tools to trade and expect users to understand what they are doing and very unfriendly for newbies.
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