Most crypto bros are surely available with these terms: DEX and CEX. Everything’s clear: they are decentralized and centralized exchanges.
As of September 2020, there was the only decentralized exchange – UniSwap. Nowadays, users worldwide use more than 20 decentralized exchanges, and the most visited one is Pancake Swap.
But, one may have one obvious question: what to choose and which one is better? Let’s take a closer look at their pros&cons.
Cryptocurrency centralized exchanges (CEX) are similar to traditional stock exchanges, but unlike them, crypto exchanges do not have brokers. CEX is an intermediary in trading between users and guarantees the security of transactions.
Trading in all CEXs is conducted through a table of orders for purchasing and selling cryptocurrencies, which is called the order book. It contains all orders for purchasing and selling assets of the trading crypto platform. The supply and demand determine the value of assets.
Decentralized exchanges are platforms that allow users to trade with each other directly, i.e., without intermediaries.
The main point is that DEXs don’t have centralized authority that could block the account or withdraw the user’s funds. But at the same time, no one except the user is responsible for their safety: if the user suddenly loses access to the wallet, then no one can help them.
Trading in the DEX is done in two ways. Some sites work with applications like regular CEXs, bringing buyers and sellers together using smart contracts. But the market is much more popular than DEX platforms that use liquidity pools – collective storage of users’ crypto assets.
How it works? Unlike CEX, there are no order books or market makers in DEX, and instead, it is liquidity pools that provide liquidity. To tell a long story short, DEX users can exchange assets directly from the liquidity pool without waiting for buyers or sellers. Each pair of assets has its own pool, for example, for USDT and ETH there is a USDT/ETH pool, through which users can exchange their USDT for ETH, and vice versa.
It is noteworthy that the final exchange rate is determined using an algorithm based on the ratio of assets in the pool: when coins are bought, their value increases, and when they are sold, they decrease.
At the same time: note that no regulation means no responsibility for emerging problems.
Suppose you are a beginner, willing to buy cryptocurrencies for fiat money or invest in popular altcoins. In that case, the easiest way is to use the convenient centralized platform available in your country.
For those who want to trade with yet small-cap tokens, DEX is the best choice. But here, we must understand that decentralized exchanges aim at more experienced users unsatisfied with simple spot trading.
When choosing a suitable DEX note: you should always pay attention to the blockchain the DEX is built on, how long it has existed and what audits it has passed. The second is that if there were no problems at the first stage, the platform was not subjected to any hacks; see how the DEX works. It is also crucial to look at the total staked liquidity. This is a big risk if you are one of the first providers.
We want to let you know that Weld Money native token WELD is listed on DEX as well as CEX, so don’t hesitate to check it right there while the price is totally affordable.
Read more details about DEX and CEX comparison in our Medium article.