<p>The recent crypto crashes have sparked calls for increased transparency from centralized exchanges. If you&#39;re a beginner trader, you may still find yourself torn between trading on a decentralized exchange (DEX) vs a centralized exchange (CEX). What should you know as a DEX or CEX user? Today, we are going back to the basics.</p><h2 id="header-0"><strong>Key differences between DEX and CEX</strong></h2><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/2453b9e28bff41b385c60f94d69ee835.png" /><h3 id="non-custodial-vs-custodial">Non-custodial vs Custodial</h3><p>DEXes are non-custodial. This means that you trade with no intermediaries and you use a decentralized or hardware wallet to trade. The exchange does not hold custody over your crypto assets since it does not have access to your wallet.</p><p>In comparison, CEXes are custodial. You deposit funds into your exchange wallet and the exchange helps you to manage your funds. Thus, they hold custody over your assets.</p><h3 id="amm-order-book-exchanges">AMM / Order Book Exchanges</h3><p>Automated Market Maker (AMM) and Order Book models are how exchanges operate and process transactions.</p><ul><li>AMM makes use of liquidity pools, which are collections of crypto tokens. When you submit a trade order, smart contracts send your tokens to the pool and swap them for the token you want. Your buying or selling price is determined by a pricing algorithm which considers the exchange ratio of the tokens in the pool.</li><li>Order books record all buy and sell trading activity that happens on the exchange. Orders are split into two columns, with asks (sell) and bids (buy). When you submit an order, your ask or bid becomes an entry on the order book and will be fulfilled as long as there is a match.</li></ul><p>There are two main types of DEXs: Automated Market Maker (AMM) and Order Book. An example of an AMM DEX is PancakeSwap, while an order book DEX is ApolloX DEX.</p><p>CEXes typically follow an order book model. An example of a CEX is Binance.</p><h3 id="account-registration">Account Registration</h3><p>Since DEX is non-custodial and you need only connect your wallet to a DEX to start trading, no account registration is needed.</p><p>Meanwhile, you would need to create an account on a CEX to utilise their wallets for trading.</p><h3 id="know-your-customer-kyc">Know Your Customer (KYC)</h3><p>KYC are mandatory checks enforced by the exchange to make sure you are who you claim to be. This could include asking for your personal information and a real-time photo verification. KYCs are strongly touted as helping to prevent fraud and usage of fake identities.</p><p>Since no account registration is needed for a DEX and you have custody over your funds, naturally there is no need for KYC. On the other hand, many CEXs have implemented KYC to ensure that customer records are not falsified.</p><p></p><h2 id="header-1"><strong>Pros and Cons of DEX</strong></h2><p>Pros</p><ul><li>More secure, you own your keys</li><li>More privacy, you can trade anonymously</li><li>Less risks of personal data leaks</li></ul><p>Cons</p><ul><li>May not be as user-friendly for beginners</li><li>You need to have your own decentralized wallet and be responsible for your own assets</li><li>Some functions that you see in CEX (e.g. set limit orders; convert to fiat) may not be available on DEXs, especially AMM DEXs</li></ul><h2 id="header-2"><strong>Pros and Cons of CEX</strong></h2><p>Pros</p><ul><li>User-friendly, CEX interfaces look like stock brokerages</li><li>Often support buying crypto using fiat currency</li><li>High liquidity </li></ul><p>Cons</p><ul><li>Risk of losing your funds in hacks or unexpected crashes</li><li>Risk of personal data leaks</li><li>Strict KYC policies</li><li>May be subjected to harsh regulatory pressures, thus affecting daily operations</li></ul><p>In conclusion, look at your priorities. If you are looking for more autonomy, privacy and security, DEX should be your main mode of trading. CEX would be suitable for beginner traders or those looking for a more user-friendly interface and fast trade.</p><p>That said, DEXes are becoming more user-friendly and have expanded their range of products in recent years. Considering taking some time to try a DEX out, especially during these trying times.</p>

DEX vs CEX: What You Need To Know

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