Centralized Exchanges (CEX) Vs Decentralized Exchanges (DEX) – What’s Best? 2021

Most people are familiar and comfortable with the concept of centralized exchanges (CEX). Yet one of the main drivers of crypto initially was the idea that you can stay decentralized and avoid all the privacy, compliance and potential control concerns that come with using a CEX.

The following are some of the largest and best known centralized exchanges for crypto trading around the globe today but listed in no particular order:

Upside of CEX

They are typically all easy to use, excellent UI, UX and relatively safe, offer extensive list of tokens with the ability to trade across multiple blockchains with plenty of liquidity.  They come with all the bells and whistles for technical analysis; either a classic and/or advanced trading mode which include every indicator under the sun, limit orders and crucially the ability to convert fiat currency into crypto; allowing a smooth entry into this market for new retail investors. 

Offering margin trading, although very risky for those inexperienced traders it is nonetheless something that is growing in popularity but currently coming under increased scrutiny by regulators.

Customer support – If you forget your password or experience any issues they typically have good support on offer via instant chat, phone and/or email that provide the sense of security and comfort we all might be familiar with.

Downside to CEX

They have complete control over the clients assets. This kind of goes against the point, or at least it does for the original hardcore crypto fans. Now with more scrutiny, particularly across some jurisdictions they must abide by ever increasing regulations such as KYC and AML which are getting more complex.

CEX are still however prone to cyber attacks, although most offer guarantees, so no matter what your assets are protected or insured up to an agreed amount.

Decentralized Exchanges /DEX

Allow users to transact without any third party being involved.  They work using liquidity pools and an automated market maker to match up orders instead of order books used by CEX’s. The DEX does not store user funds or their data. 

The following DEX are some of the most popular but listed in no particular order:

For a more comprehensive list please visit here

Upside of DEX

Offer full control of all crypto assets with unparalleled level of security. There is no single repository to access all funds since all are owned by the traders themselves. It is nearly impossible to hack.

DEX allow you to act essentially as your own bank; no one can gain or stop you controlling your assets – unless you leave your passphrase lying around or lose it! No KYC or handing over personal information is required.

Gain access to tokens or coins that are at very early stage and not yet listed on any well known CEX. It should go without saying that this comes with more risk but the upside is considerable..

No government or central authority can freeze you out of your account or stop you accessing your assets.

Downside of DEX

Little to no support to deal with lost security details hence it can be incredibly risky for some people if they have a habit of forgetting/losing pass codes etc.  

Typically poorer UI/ UX which can be off-putting for some, making the whole experience more confusing and even scary.

Lower speed, volume and liquidity – Getting the price you want and speed to move in and out of a trade is not comparable to that of using CEX. If you are trading a less liquid token than you are potentially subjected to significant ‘slippage’ which can vary over the course of a few hours or a day.

It is difficult to find any DEX with leverage/margin trading available and the ones that do have few trading pairs, although this will change in the future as DeFi develops further.

Less intuitive and sometimes confusing platforms for the average retail investor/trader- Having to sync up to a decentralized wallet like MetaMark or Trust Wallet and then knowing how to transfer tokens to and from a DEX to CEX requires a bit of reading up. If a user wants to convert back into a fiat currency and cash out they need to know what they are doing.

No fiat to crypto conversion – Makes it less accessible for those without crypto yet. Once you have done some initial conversion and got used to trading on a CEX then transferring some of your assets to a decentralized wallet to access decentralized application (DApp) like a DEX – be it Uniswap or other becomes an option.

Combining CEX and DEX = Hybrid Exchanges (HEX)

Can we have he best of both worlds?

As with most things in life the best solutions are usually somewhere in the middle of the two extremes. 
The demand for DEX exchanges is increasing and we expect plenty of innovation across this space making them more accessible and user friendly for the average retail investor. However Lets take a quick look at hybrid exchanges:

One such exchange called  KAIDEX are attempting to provide such an experience. They intend to provide an excellent user experience, plenty of liquidity with high speed transactions across the globe.

Upside of Hybrid Exchanges (HEX)

They provide complete privacy and anonymity to the exchange users whilst still complying with laws within their jurisdiction.

Users retain complete ownership of their assets regardless of the third party running the exchange. The assets are stored in cold storage to prevent hacks.

Hybrid exchanges use escrow to hold the assets being exchanged by two counterparties. The liquidity management is similar to that of CEX – meaning it does not rely on number of users to provide the liquidity as with most DEX’s which of course can lead to slow trading with significant price slippage when trading volumes are low. Instead the order book for the hybrid exchange is setup in a completely transparent manner and offers fast experience without the big slippage.

Hybrid exchanges are much faster than using a DEX, ensure anonymity of the exchange users and compliant with laws across various jurisdictions whilst giving users peace of mind knowing all their assets are stored in cold storage.

There will be plenty of desire to build future hybrid exchanges that deliver the goods and provide a more centralized experience but without the drawbacks of being centralized. If you are interested in this type of work or already working on blockchain projects and want to continue to learn more: go explore the many certified and globally recognized courses.

Should I Use CEX, DEX or HEX?

In truth there is no simple answer to this as it depends on the individual. Most retail investors should stick with the CEX to familiarize themselves and get used to trading Crypto. Later on it might be a good idea to at least try out a DEX but just with smaller amounts to test.

Advanced crypto investors and traders should absolutely try a combination of two or three as they have the enthusiasm and motivation to do their homework and read up on these platforms. Those crypto traders who care very much about their privacy and are not in the habit of moving assets between crypto and traditional/fiat world would prefer to stay on DEX where possible.

The real issues tend to arise when mixing between fiat and crypto worlds hence the future of HEX could prove exciting for some.