Trading crypto is an integral part of the ecosystem, the ability to swap between currencies, or to cash out to fiat is extremely important. Exchanges are what make cryptos, currencies and what makes DeFi, finance. There are two main types of exchanges: CEXs or centralized exchanges and DEXs decentralized exchanges. These two types have a lot of big differences and it is important to be educated on them.
CEXs or centralized exchanges. A crypto currency exchange controlled by a centralized authority — usually a company. Most CEXs offer advance trading and fiat on and off ramps.
DEXs or decentralized exchanges. A crypto currency exchange hosted on a decentralized network — no one person had authority over how it will operate and custody of the funds. Most DEXs offer simple swap, but have the advantage — that if coded properly being extremely safe.
Now that we have a rough definition of these two types of exchanges, let’s list out pros and cons of each:
- Fiat on and off ramp
- Advanced trading options
- Futures trading
- Leveraged trading
- Legal business usually covered by the exchange
- Potential KYC
- Lesser security
- Can’t commit tax fraud
- Account may be frozen randomly
- Account more susceptible to hacks
- No KYC
- If coded correctly extremely secure
- Account is your wallet — unfreezable
- Your account is as secure as you wallet — hacks are dependent only on you
- No way to onboard fiat
- Only simple swap function usually
- No futures or leverage
- You have to report your taxes (or not)
After listing out the pros and cons of each exchanges, it becomes very obvious that these account are basically opposites, each with their strengths and weaknesses. It is important to use what is more suited for your use-case. The thing to be very careful about is scams, many scammy DEXs and CEXs exist, so as always — always DYOR!