Crypto Research
DEX (Dezentralized Exchange) vs CEX (Centralized Exchange)
Oct 12, 2021
If you want to buy crypto assets (coins and tokens), should you use Binance or UniSwap? Should you choose a central exchange (CEX) or a decentralized exchange (DEX)? Crypto enthusiasts believe that the use of decentralized crypto exchanges could increase significantly in the future. Reason enough to take a look at the special features of these two types of exchanges.
CEXs Pros and Cons
Pros
Let's start with Binance, a centralized exchange, first and talk about the pros and cons of CEXs in general. Binance as a centralized company can be held accountable if there is misconduct or scandals. It makes it a lot more accessible to different types of users and customers. Your funds are also at least insured in their hot storage wallets and they have a customer support team that will help you if you need help when something goes wrong. CEXs generally have a good user experience and are super beginner friendly. You can choose Binance as your very first crypto place, which makes it easy to access Bitcoin or Ethereum and other altcoins.
Cons
One of the downsides to CEXs is that they offer a small number of coins compared to all the possible options on the market. There are also very strict KYC / AML guidelines in place to comply with the regulations. Another disadvantage is that these CEXs hold your crypto assets and therefore have the option to censor you and confiscate your crypto assets without much recourse. Or you may lose your crypto funds as a CEX is a company that is at risk of going bankrupt and closing one day. This is why there are two common expressions in the crypto community:
"Not your keys, not your coins.”
“Be your own bank.”
DEXs Pros and Cons
Pros
Decentralized Exchanges (DEX) are undoubtedly one of the most interesting and fastest growing areas of DeFi. A DEX is a decentralized exchange and essentially a new type of pair matching that allows people to place orders and trade cryptocurrencies without an intermediary institution keeping the ledger or controlling user funds. DEXs do not operate with a central authority. Instead, they replace a central authority with a smart contract. Smart contracts are basically codes that allow people to enter into an agreement. If both parties do what they agreed, the smart contract will work as it should. If one person wants to try tricks, the smart contract will not allow them or give the other person the money back. Hence, the users need to trust the smart contract.
Another benefit of DEXs like UniSwap is that they offer a larger number of tokens that you can trade with. This is a lot more than what you can find on a CEX like Binance. Another benefit of DEXs is that you don't have to submit your KYC information. Finally, DEXs are typically much faster than CEXs and charge low fees.
Cons
DEXs have limitations. One disadvantage is that they only allow crypto to be exchanged for crypto. These crypto assets must be on the same blockchain. When using UniSwap, you can only exchange Ethereum and Ethereum tokens. Another disadvantage is that the code of the smart contract is visible to everyone. If a hacker finds a bug, the hacker could simply take advantage of it. Another potential problem to consider is slippage. Slippage is the difference between the expected price of a trade and the price actually executed. This can happen because the market is moving while an order is being executed, or if the liquidity is too low, the trade itself can actually move the market quite a bit.
In this regard, DEXs still have some catching up to do with centralized exchanges, which can generally offer more robust features and a better user experience. DEXs are without a doubt an important part of the future of cryptocurrency and are already of great help to people in restricted access countries looking to access the blockchain ecosystem. With more growth and development time, DEXs become more advanced and become an increasingly better option over traditional (centralized) exchanges.