Advantages of Centralized vs. Decentralized Exchanges
Buying or selling cryptocurrencies usually starts with exchanges or, in other words, digital marketplaces where most crypto trading takes place. For example, Binance, a leading centralized exchange (CEX), deals with over $24.27 billion in daily volumes. Likewise, UniSwap is the world’s largest decentralized exchange (DEX) with over $7.25 billion in Total value locked (TVL).
While centralized exchanges now have market dominance, decentralized exchanges provide strong competition with increasing volumes. And while both CEXs and DEXs enable crypto transactions, they differ greatly in terms of security, cost and transparency. In fact, both CEXs and DEXs have their own set of advantages that make them unique, as discussed in this article.
CEXs often go against the spirit of blockchain technology, but they also offer some great benefits, including the following:
Centralized exchanges keep enough assets on hand to allow for quick deposits and withdrawals. So, for example, anyone who wants to exchange their BTC for USD can do so immediately on a CEX. Liquidity is basically CEX’s trump card and that’s why they invest heavily in delivering fast transactions to consumers with minimal slippage.
Blockfinexfor example, offers a highly secure and robust exchange with deep liquidity for over 500 crypto assets.
Most CEXs ask for operating licenses in different countries, demonstrating their stability and competence to the financial regulators. They also follow investor protection measures and issue risk warnings to clients regarding the non-reversible nature of trades. This instills confidence in consumers, allowing them to use the platform with confidence.
Easy to use
CEXs usually offer user-friendly interfaces, which makes trading cryptocurrencies very easy at any time. They also allow users to set up trades in seconds as custody and orders are all centralized, making them a go-to place for large trades.
Blockfinex is one such exchange that provides an easy-to-use interface for trading crypto. The platform allows traders to buy/sell at huge volumes without slippage and in just a few clicks.
Controlling DEXs is like enabling the advanced settings in an app. They operate in an open-source, reliable and permissionless manner and provide users with complete transparency about their money.
And they also bring some of the best benefits, including:
DEXs don’t usually seek sensitive information during boarding. In other words, DEXs do not implement procedures like KYC (Know-Your-Customer). Everything from wallets to transactions is anonymous, ensuring maximum privacy.
Self-custody of assets
The rule of thumb in DeFi is this: not your keys, not your crypto. DEXs adhere to this principle and are non-custodial, allowing users to exercise self-custody. In simple terms, DEX users retain control of their private keys and thereby enjoy real ownership of their assets.
Lower transaction costs
Decentralized exchanges eliminate the need to engage middlemen, resulting in cheaper transactions overall. Most DEXs currently run on Ethereum, which sometimes leads to high gas costs.
However, blockchains are rapidly innovating in solutions to ensure negligible costs for end users. For example, a transaction worth $100,000 only costs a few dollars on Polygon Network.
What to choose?
It is entirely up to the user to choose which exchange to use based on his needs and requirements. CEXs are ideal for those who are primarily looking for convenience and are not comfortable with self-preservation. And platforms like Blockfinex are the best bet that offer maximum convenience when trading crypto. However, DEXs can be the way to go if you’re all about privacy and ownership of your money.
In that regard, both CEXs and DEXs have their advantages and it would be naive to call one better than the other. They fulfill different purposes and are thus relevant to users under different circumstances. And together, they facilitate the broader blockchain cryptocurrency domain, driving adoption in the process.