Cryptocurrency and Centralized Exchanges (CEX) vs. Decentralized Exchanges (DEX)
Hello everyone, How are you doing, I welcome you again to my blog in the Steem Alliance community.
Today, we will discuss an interesting topic on the platform which will be: Cryptocurrency and Centralized Exchanges (CEX) vs. Decentralized Exchanges (DEX)
- Introduction
The world of cryptocurrencies is growing daily, and exchanges are the major platform for trading cryptocurrency.
The discussion between choosing a centralized Exchange (CEX) and a decentralized Exchange (DEX) is one of the major discussions in the crypto community.
Both these exchanges are built differently and have different uses, In this article, we are going to have an in-depth look into CEX and DEX architectures and explore some of the case studies from the most successful CEX and DEX platforms.
Advanced CEX and DEX Analysis
Centralized Exchanges (CEX)
Centralized exchanges are like the traditional stock exchanges, functioning like the middlemen(brokers), they help to store users' assets and help them with a platform to trade.
Architecture:
1 . User Accounts: There must be a feature where the users sign up and deposit funds into the wallets of an exchange.
2 . Custodial Wallets: The exchange stores users' money in custodial wallets.
Advantages:
High Liquidity: CEXs usually have higher liquidity leading.
User Experience: CEX is a user-friendly platform with UI/UX and proper customer support.
Speed: Sometimes, Transactions are faster on CEXs.
Challenges:
- Security Risks: Due to their centralized custody, it sort of makes CEXs easy targets for hackers in any case that there is a bridge in their security.
- Trust Issues: Most whales usually have trust issues with the Centralized Exchange to safely keep their funds, the reason why we see many of them adopting cold storage instead.
Decentralized Exchanges (DEX)
Decentralized exchanges function without the need for intermediaries(middlemen), fully focusing only on peer-to-peer trading on the blockchain itself.
Architecture:
1 . Smart Contracts: DEXs are mainly controlled by smart contracts created to automate the trading process.
2 . Non-custodial wallets: In this case, users have complete ownership of their funds and the security is in their hands.
Advantages:
- Security: It ultimately has zero risk of hacking attacks as the users keep their funds in their own wallets.
- Privacy: DEX platform usually needs less personal information therefore no need for user's privacy.
Challenges:
Liquidity: DEXs normally have less liquidity, meaning they have higher slippage(spread).
User Experience: The user interfaces of DEXs can be a little bit hard for non-crypto experts.
Case Studies of Major CEX and DEX Platforms
Major Centralized Exchanges
1 . Binance
Overview: Binance is the top CEX by trading volume and presents a different range of cryptocurrencies.
Features: Proper trading tools, customer support, and they have a strong security layer and withdrawal process.
2 . Coinbase
Overview: Coinbase is also a user-friendly CEX, and is mostly preferred by U.S-based traders, due to its compliance with US framework.
Challenges: Trading Fees are high on Coinbase as compared to other exchanges and they don't have as many altcoins as other CEXs.
Major Decentralized Exchanges
1 . Uniswap
Overview: Uniswap is like the finance of CEX, it is the leading decentralized exchange with lots of unique features such as using the AMM model for token swaps.
Features: It has the most liquidity(Trading Volume) among the DEX.
Challenges: High gas fees, especially on the Ethereum network.
Conclusion
The major idea of this topic is to give users the wide range of options and unique features they need especially when they are in between choices of choosing which exchange suits their trading model.
In the crypto space, we all have what works best for us, I prioritize the CEX platform more simply because I have the right tool needed to manage it effectively, and because it works fine for me doesn't mean it will for others, so, therefore, the decision is for you as a user to decide whatever exchange model you want out of the crypto space.
' NB: This post concerns education, not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your research and consult a financial advisor
https://x.com/_bhardmorse/status/1801246156825010448
Upvoted! Thank you for supporting witness @jswit.
A very common topic already published many times in the past.
@badmus-official try some different topic.
Alright I will, thanks for the input..
I don't think the topic been a common topic is the issue here, I think it all goes to the genuity of the article , there are some advanced discussions on this such as liquidity issues of DEX and as well with Coinbase been available to US retail traders only.
I think everyday we learn new things about a discussion, well I had recently discovered this issues that's why I brought it up during my research, but it's all good, I guess I move unto the next one then..
Safe day ✌️