Do you want to know whether to use CEX or DEX? Well, you’re at the right spot. As the title of the post suggests (CEX Vs DEX), this post will cover all the differences between these two types of exchanges, so you can decide which is better for you. We’ll also recommend the best CEXs and best DEXs later, but first, let’s talk about CEXs Vs DEXs.
CEXs Vs DEXs
CEXs and DEXs have plenty of differences. By reading this section about CEXs Vs DEXs, you’ll become familiar with all of them.
The biggest difference you’ll find in this CEXs Vs DEXs comparison is anonymity. DEXs offer far greater anonymity than CEXs. This is because, unlike CEXs, they don’t make their users complete KYC and AML procedures. Completing these procedures eliminates anonymity because the user has to give all sorts of personal information to the authorities. The users will have to provide at least some of the following information:
- Phone Number
- Official ID
- Permanent/Temporary Address
However, not following these procedures can be considered a double-edged sword. KYC and AML help prevent hackers and scammers from joining the exchange, and they make it easier to identify them after they have committed the fraud. Nonetheless, the absence of KYC and AML shouldn’t be considered a downside for DEXs, because these exchanges are already quite secure, so they don’t need KYC and AML.
When it comes to wallets, DEXs are doing far better than CEXs. All the DEXs offer non-custodial wallets, whereas, the majority of the CEXs don’t. In case you’re not familiar with the non-custodial wallets, these are the wallets that provide keys to the owners. As for custodial wallets, the exchange gets custody of the private keys. Since most CEXs offer custodial wallets, they own the private keys of the assets. The problem here is that in case the exchange gets hacked, the hacker can steal the users’ assets. This isn’t an issue for DEXs’ users because they own the private keys of their wallets.
Fiat to Crypto
The majority of the CEXs support fiat currencies, whereas, less than a fraction of DEXs support fiat. Therefore, you’ll need to purchase crypto to use DEXs. The downsides are that this will make the process more time-consuming and it may even increase the trading cost.
Liquidity is the ability of the coin to be converted into cash or other coins without decreasing its value. The higher the number of coins an exchange has, the higher its liquidity. The exchanges with high liquidity reap lots of benefits:
- The sellers could sell their assets at a competitive price
- Large trades will not cause volatility. The market will keep operating stably
- High liquidity means that a huge number of people are willing to buy and sell tokens. It means a token can be purchased or sold at a fast pace
- A liquid market has a more developed and precise formation of prices, which leads to more accuracy with technical analysis
CEXs have a much larger user base than DEXs, therefore, they have much higher liquidity than DEXs. Here are 3 reasons why they have a small user base.
- DEXs platforms are new, and they’ll need time to grow
- The transaction speed is quite slow
- The biggest reason is the difficulty in accessing the DEXs
When it comes to a user interface, CEXs are doing far better. This is mostly because getting access to CEXs is much easier than getting access to DEXs. To access a CEX, you’ll need to provide some information such as name and email and purchase a wallet. Setting up the wallet will be incredibly simple because the exchange will take care of the complicated stuff. When it comes to DEX, getting access is much more complicated. First, you’ll need a special browser that supports the DEX you want to use, and in case you want to use multiple DEXs then you may need multiple browsers. Second, you’ll need to set up the wallet yourself. These tasks shouldn’t be difficult for a tech-savvy person, but for the vast majority of the population they are extremely difficult.
When it comes to transaction costs, DEXs usually charge a lower fee. The reason is that they use smart contracts. Smart contracts are self-executing pieces of code that can process transactions without the assistance of any intermediary. Since smart contracts get rid of intermediaries, DEXs can process transactions at a lower rate. However, this isn’t always the case. Because many DEXs charge a higher transaction fee to compensate liquidity providers (LPs), the transaction cost for those exchanges could be even higher than many CEXs. Why do many exchanges increase the transaction fee to give higher rewards to the LPs? We’ll cover it in the next section.
Impermanent loss means that the LP’s token price at the time they exit the liquidity pool was lower than the time they entered the pool. Impermanent loss is much more common in DEXs than CEXs. This is due to the pricing system of DEX liquidity pools. Now, let’s address the question that we promised to answer. DEXs need the liquidity of the LPs to run the liquidity pools. LPs provide liquidity for positive ROI but impermanent loss often leads to negative ROI. Since impermanent loss is quite common in DEXs, it takes away the incentive of LPs to invest in the liquidity pool. To keep the LPs, many DEXs increase their transaction fee.
The transaction speed of most CEXs is much higher than DEXs. The reason for this is that many DEXs use miners for validating transactions. To validate a transaction, miners have to solve the right hash. They usually have to generate billions of hashes until they find the right one, so the process can be quite time-consuming. The time is especially long for DEXs with a high number of miners.
CEXs is winning in this area. The majority of DEXs allow traders to exchange, lend, and borrow. Some of them have them rolled out staking and stop-loss and take-profit orders, but the numbers are too little. Every other CEX offers all these features, and many offer much more. Spot trading, leveraging, futures, and options are only some order types that you’ll find only on CEXs.
CEXs Vs DEXs: Which One Should You Choose?
Now it’s time to answer the biggest question in this CEXs Vs DEXs comparison. Which one should you choose? The answer depends on your needs and preferences.
You should use a DEX if any of these features are your priority:
- Safety (from hackers and fraudsters)
- Low Transaction Cost
You should use a CEX if you find any of these features the most important:
- Ease of Accessibility
- Ease of Navigation
- Large Variety of Order Types
- Fast Transactions
- Fiat Availability
- More Precision For Technical Analysis
- No Negative Impact On Price By Large Transactions
However, it’s worth noting that these features aren’t set in stone. Some exchanges offer good features of both types of exchanges.
Best Centralized Crypto Exchanges
If you want to use a centralized exchange, then you’ll love this section. We are going to introduce you to some of the best CEXs in the world. All these exchanges have unique features, so read them all to find out which one is best for you.
Binance is the most popular crypto exchange and it has the highest trading volume. The exchange supports over 174 currencies and offers 50 pairings. Binance has an incredibly low withdrawal fee and no deposit fee. It’s 0.1% for small transactions and it’s even lower for large transactions.
The transaction speed depends on the funding method you use. Here are the 3 funding methods supported by the exchange.
- ACH: You can buy and sell using this method. Transactions are completed within 1-3 days.
- Credit/Debit Card: You can buy but not sell. Transactions are completed instantly.
- Wire Transfer: You can buy but not sell. Transactions are completed within 1-3 days.
Binance exchange has robust security protocols, and it offers insurance. The exchange was only hacked once, and they cover all the stolen amount with insurance funds. You will find about any crypto product on Binance. Some of their popular products are staking, loans, credit cards, liquidity pools, and NFTs.
The Binance exchange…
To read more news about dexs and cexs you can visit https://algory.io/blog/