Advantages of CEX and Their Differences from DEX

HTX TutorialDeFi

5 lessons in total

  • 01
    Advantages of CEX and Their Differences from DEX
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  • 02
    How Merkle Trees Make Exchanges More Transparent in Assets?
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  • 03
    CEX Self-regulations with a Comparison with Traditional Finance
    Not Started
  • 04
    How to Trade and Store Crypto Assets Safely
    Not Started
  • 05
    How to Distinguish Between True and False Market Information?
    Not Started

A centralized exchange is an exchange relative to a decentralized exchange. A centralized exchange is commonly referred to as CEX and a decentralized exchange as DEX. In traditional finance, all exchanges are centralized, and so are all financial institutions. The concept of DEX came about after the birth of blockchain.

In the current cryptocurrency market, exchanges are mostly centralized, most exchanges familiar to users are centralized, and many users trade cryptocurrencies for the first time on CEX. Huobi, for example, is a well-known CEX.

CEX often requires the Know Your Customer (KYC) process, after which users can trade freely. Users do not need to know too much about blockchain technology or keep their private keys; they just need to save their account passwords. All trades are completed by the exchanges' matching systems, much like specialized trading on traditional exchanges.

An important feature of DEX is that transactions run on blockchain and are conducted in a decentralized manner. This has the advantage of making transactions open and transparent. However, due to market depth and network reasons, users usually experience delays in their trading process, and the trading experience needs to be improved.

Differences between Centralized and Decentralized Exchanges

1. Parties involved

CEX deals with buyers and sellers, while DEX deals with capital pools.

2. Security

Capital security incidents may occur in CEX due to internal management, but large exchanges generally set reserves to compensate users in asset incidents or hacking. Compliant CEX can use its influence and local laws to recover damages after being hacked, while DEX is less likely to solve this problem through compliance. Moreover, since CEX requires KYC, there is a risk of leakage of user identity information, which is not an issue with DEX.

3. Transaction fees

Transaction fees on CEX are generally charged on a pro rata basis and relatively fixed. In addition to transaction fees, DEX also charges miner fees, which can fluctuate greatly depending on the network.

4. Transaction speed

CEX handles huge volumes of transactions quickly. The status change of each transaction order on DEX will be recorded on the blockchain, often resulting in poor liquidity and low speed.

5. Fiat trading

CEX supports fiat trading, while DEX does not.

Advantages of Centralized Exchanges

● The user interface of CEX is similar to that of traditional financial institutions, which is easy for beginners to understand, giving users easy and simple access to the appropriate trading options. The process of purchasing and managing digital assets is very simple.

●   With a huge user base and transaction volume, CEX generally has good liquidity and sufficient market depth, ensuring a large number of trading orders and free trading in the market. The central infrastructure of CEX makes instant trading possible. The algorithms of top CEX can process thousands of orders per second, responding to changing market conditions in real time.

● CEX supports fiat trading, which is a necessary step for new users to dabble in digital assets. Most investors are exposed to centralized exchanges before they can explore other applications further.

● As a top CEX, Huobi provides multiple functions and services in addition to basic trading functions, such as derivatives trading, margin trading, trading bot, financial services, pledging, and lending, which enriches user experience.

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