Centralised Exchanges VS Decentralised Exchanges
Find out the differences between CEX and DEX!
Summary
A centralised exchange let's traders buy an sell crypto and acts as a middle men to protect their funds. In return of their services, they charge certain fees.
They are an easy way to experiment with crypto and understand how trading works
This is why it is being used by wide variety of users
What is a CEX
A centralised exchange (CEX) is an organisation that allows crypto traders to buy and sell crypto assets on a large scale. In essence, they are a marketplace that works similar to stock exchanges by functioning as an intermediary between buyers and sellers and a trusted custodian for storing and protecting traders’ funds. CEX users trust the institutions to process their transactions, similar to a bank where the financial institution stores the money on behalf of their clients.
The most significant difference between a DEX and a CEX is that CEX are a single point of authority that processes the transactions and acts as an intermediary
CEX are responsible for monitoring transactions and ensuring the security of users' digital assets
One of the first CEX is Binance which was founded in 2017. According to Coingecko, it sees a daily volume of $11,163,054,530.
Centralised exchanges are more liquid than decentralised exchanges because they allow multiple users to buy and sell the same asset, allowing them to react to market trends. This makes CEX faster than DEX as they do not go through the time-consuming processes of matching orders.
How do they work?
A CEX receives orders from its users, and they match buy and sell orders that have the same price. In some cases, they may also operate as market makers by providing liquidity to the tokens supported by their platforms in order to improve execution speeds.
Rather than trading in an open market, CEX users trade shares with other users in the same exchange
How to get started?
Get started on using Scallop Exchange with this guide:
Summary
A decentralised exchange is a blockchain based platform that lets traders buy and sell tokens without a middleman, and directly from their web 3.0 wallets, without the need to deposit to a trading account
Centralised Exchanges on the other hand, allows buyers and sellers trade within a third party platform and provide many benefits such as security and ease.
DEX and CEX have critical differences and they both offer solutions to different problems crypto asset owners may have.
What is a CEX?
A centralised exchange (CEX) is an organisation that allows crypto traders to buy and sell crypto assets on a large scale. In essence, they are a marketplace that works similar to stock exchanges by functioning as an intermediary between buyers and sellers and a trusted custodian for storing and protecting traders’ funds. CEX users trust the institutions to process their transactions, similar to a bank where the financial institution stores the money on behalf of their clients.
The most significant difference between a DEX and a CEX is that CEX are a single point of authority that processes the transactions and acts as an intermediary
CEX are responsible for monitoring transactions and ensuring the security of users' digital assets
One of the first CEX is Binance which was founded in 2017. According to Coingecko, it sees a daily volume of $11,163,054,530.
Centralised exchanges are more liquid than decentralised exchanges because they allow multiple users to buy and sell the same asset, allowing them to react to market trends. This makes CEX faster than DEX as they do not go through the time-consuming processes of matching orders.
How do they work?
A CEX receives orders from its users, and they match buy and sell orders that have the same price. In some cases, they may also operate as market makers by providing liquidity to the tokens supported by their platforms in order to improve execution speeds.
Rather than trading in an open market, CEX users trade shares with other users in the same exchange
How to get started?
Get started on using Scallop Exchange with this guide:
What is a DEX
A decentralised exchange (better known as a DEX) is a peer-to-peer marketplace where transactions occur directly between crypto traders.
There is no middleman or 'intermediary' managing funds in a decentralised exchange, all the transactions are self- executing through smart contracts. In traditional exchanges, this intermediary is looking to make profit from traders.
Popular decentralised exchanges have been built on top of leading smart contract enabled blockchains. They are built on top of layer-one protocols, meaning that they are built directly on the blockchain. This includes Ethereum and BSC.
There’s no depositing or withdrawing crypto to a DEX. The trade happens directly between two users’ wallets, with limited input from a third-party. This reduces the chances of fraud and hacks.
Traditionally, the largest DEX is Uniswap, which was created on the Ethereum blockchain in 2018. According to coingecko, it often sees daily volumes upward of $2 billion. It is amonst one of the largest decentralised organisations around.
How do they work
A DEX substitutes the traditional Orderbook with an algorithmic pricing mechanism, usually in the form of an Automatic Market Maker and Liquidity Pools. These liquidity pools are effectively pots of assets available to buy from and sell to with prices defined by algorithms called AMM's (Automatic Market makers). This guarantees the ability to trade, which is an important part of assets being viable for investors. It also creates price stability.
How to get started
You need to first sign up for a web 3.0 wallet like Metamask - we have a guide here
Then, simply connect that wallet to a DEX. Popular ones include:
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