You might have seen or heard about CEX and DEX when listening to podcasts or news
about cryptocurrencies. It is nothing bizarre, but just abbreviations for the different types of
exchanges cryptocurrencies can be traded on. I will try and leave out the technicality to
make this article more enjoyable.
Centralized exchanges (CEX) are mostly well-established companies where investors can
trade their crypto assets with the help of a “middle man.” CEXs help investors purchase local
fiat currencies with an app or a web browser. You might ask, “how do I get my money in my
bank onto these trading platforms to trade?” Centralized exchanges help new investors
overcome the first hurdle of crypto investments. Although it does void the main purpose of
the blockchain (decentralization), this method, in my opinion, is the easiest way to exchange
fiat currencies into crypto. Crypto ATMs are other alternatives but are limited in availability,
and most countries do not have the privilege of owning one. For every new system, there are
pros and cons, and below are listed a few important ones:
Pros
1. Easy to use: just like your normal banking apps, you can make transactions swiftly. Most of these centralized exchanges allow peer-to-peer transactions and bank deposits. They have a nice user-friendly interface, chatbots, and sometimes customer care.
2. Reliability: CEX’s are established companies, and hence investors turn to have faith
in their investments. These exchanges are based on the regulations of the countries
they are set up, thus providing confidence for the investors.
3. Availability of fiat: the CEXs allow investors to trade their local fiat for their desired
crypto-asset anytime.
Cons
1. Risk of hacking: since CEXs are centralized, the risk of hackers exploiting some vulnerabilities in their applications and server is high. Investors lose their investments if they keep their assets in centralized exchanges. Every crypto financial advisor hints at keeping your crypto assets in cold wallets.
2. Exchange fees: although cheaper compared to other banking apps, CEXs charge investors during every transaction. Of course, they need to keep their business running, but people want cheaper options.
3. No anonymity: since the CEXs need KYC to be completed by customers before
starting any transaction, most investors turn to boycott it. Not for malicious reasons,
as most crypto critics would say, but also to safeguard their transactions.
Top five CEXs Below are some of the most used centralized exchanges:
1. Binance
2. Coinbase
3. Huobi Global
4. Kraken
5. KuCoin
Decentralized exchanges (DEXs) are set up based on smart contracts deployed onto the
blockchain network without a middle man. Though it does not allow fiat currencies,
cryptocurrencies can be traded on these DEX platforms. Let us look at the pros and cons of
DEXs:
Pros
1. Low risk of hacking: DEXs are not centralized and hence don’t have a single point
of failure.
2. Anonymity: there is no need for KYC in DEXs hence the identity of individuals making a transaction is hidden from attackers.
3. Exchange fees are relatively low when trading on DEXs.
Cons
1. Complex to use for new investors
2. Limited liquidity pool: this means investors can’t exchange their gains sometimes
because the DEX is low on liquidity
3. Does not allow trading of fiat: exchanging local fiat on DEXs is impossible.
Top five DEXs
These are some of the highest utilized DEXs:
1. Uniswap
2. Sushiswap
3. Pancakeswap
4. Bogged Finance
5. ApolloX DEX