Understanding Cryptocurrency Exchanges: CEX vs DEX by Liudmila Erukhova MBA

Think of centralized exchanges (CEXs) like Binance and Coinbase as convenient places to buy and sell different cryptocurrencies easily. CEXs can help you manage your crypto investments alongside stocks and bonds, making it simpler to grow your portfolio. Just remember that relying on CEXs means trusting a central authority with your assets, so it’s important to understand the benefits and risks involved. But it also means the central company running the exchange has a lot of power and responsibility for the financial stability and health of the exchange.

This is as simple as a long list of buy and sell orders, where the highest and lowest buy and sell orders are executed first. The highlights of a guide on Centralized Crypto Exchange (CEX) and their working must also showcase the methods for using them. Beginners can use the following steps to interact with a centralized exchange. The biggest risk of trading on a CEX is the threat of losing your assets stored on the platform. While CEXs like Binance and Coinbase offer liquidity, user-friendly interfaces, and enhanced security, it’s essential to be aware of the limitations.

What is a CEX (centralized crypto exchanges)?

The key defining feature of a decentralized exchange is that instead of an order book, it uses an Automated Market Maker (AMM) to eliminate all intermediate processes in crypto trading. In 2022 alone, multiple cryptocurrency exchanges, including Crypto.com and Binance, had to deal with their systems being compromised and loss of assets. Decentralized exchanges rely on Automated Market Makers to maintain their liquidity. But if an AMM doesn’t have an efficient liquidity pool, it can have a negative impact on an asset’s price, leading to capital inefficiency and impermanent loss. In the past, CEX used to support margin trading on its trading platform.

• But exactly how your transaction works – and the possibilities for you the user on each platform – depends on the type of exchange you’re using.
• But if an AMM doesn’t have an efficient liquidity pool, it can have a negative impact on an asset’s price, leading to capital inefficiency and impermanent loss.
• Thus, it is not a recommended exchange for both new and advanced traders.
• Centralized crypto exchanges require users to undergo KYC, and many have AML policies mandated by financial regulators.
• Countries such as the United States have tightened regulations on centralized exchanges.

In the crypto sector, some well-known CEXs include Binance, Coinbase, Gemini and Kraken. CEX offers online wallets for its users to store the cryptocurrency they purchase on the site. AscendEx, like Binance, offers features such as spot trading, futures trading, and margin trading. Before using centralized exchanges, it is always a good idea to examine the existing legislation in your region. Various regulators have begun to impose severe restrictions on centralized exchanges. Some of these centralized exchanges are unavailable in certain countries, while others may face sanctions for other reasons.

Subject to intense regulatory scrutiny

BitDegree.org does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency. Before making financial investment decisions, do consult your financial advisor. Then, you can buy the digital currency or token you would like by placing an order. Exchanges typically offer a range of order types, such as a limit, market, and stop-loss order. Once your order has been filled, you will receive the cryptocurrency you have purchased.

While CEXs provide easy trading, high liquidity, etc., their wallets are custodial, meaning that they hold authority over your crypto. Going by the famous phrase “not your keys, not your coin,” it is safe to say CEX wallets create a security risk for traders and investors. While centralized trading platforms offer many of the benefits investors are used to from their online brokerage accounts, they come with a handful of significant drawbacks. Another part of the trade-off between DEXs and CEXs comes down to whether users would rather hold their own crypto directly or entrust it to the exchange. CEXs typically require that users place assets in their custody before trading. For this, users deposit assets into smart contracts called liquidity pools.

What is a centralised exchange (CEX) and how does it work?

It is run by a central authority who undertake all operations including storage of digital assets and providing other services. Most often, these regulations include restrictions that limit the assets exchanges can support. For instance, SEC marked over 68 cryptocurrencies as securities, leading many cryptocurrency exchanges to remove support for these assets. The most prominent issue that users face with centralized exchange is the lack of control they have over their wallet keys. With no direct access to their assets, investors can incur massive losses if the exchange abruptly shuts down. In order to assess its viability, we need to undertake an in-depth assessment of the site on the basis of a number of metrics.

Next, you must fund your account by depositing crypto or fiat currency into the platform wallet. On some trading platforms, you can also link your credit card to the exchange to purchase cryptocurrencies. As CEXs are centralized, they have control over user funds and can experience technical issues or even be vulnerable to hacking attacks. All examples listed in this article are for informational purposes only.

South Korean Intelligence Service Discloses Potential Threats To Crypto Exchanges

On the contrary, decentralized exchanges allow users to control private keys alongside their wallet security. Therefore, DEXs could ensure the benefits of improved security against fraud and malicious attacks. However, working with decentralized exchanges requires a significant understanding of the working of crypto.

Exchanges are the most valuable businesses in the crypto world, according to a 2021 report by global accountancy KPMG.

CEX platform dashboard

CEX customer support offers services primarily via email and the team seems pretty responsive and helpful. It is an advanced platform with all of the necessary trading features including market and limit orders. Not only does it have a decent level of liquidity, but it also offers advanced reporting as well as cross-platform trading via APIs and a mobile platform.