Decentralized Exchange (DEX) A decentralized exchange operates without a central authority, allowing users to trade cryptocurrencies directly with each other, peer-to-peer (P2P). DEX platforms use smart contracts to facilitate trades automatically on the blockchain. Key Features: No Intermediary: Users retain full control over their funds and private keys, trading directly with others via smart contracts. Increased Privacy: DEXs typically don’t require KYC or identity verification, offering more privacy to users. Smart Contracts: Transactions are executed automatically through smart contracts, which are self-executing code stored on the blockchain. Lower Security Risks: Since users control their funds, there is no centralized honeypot for hackers to attack. Liquidity Challenges: DEXs often suffer from lower liquidity compared to CEXs, which may lead to higher slippage and slower trade execution.
Centralized Exchange (CEX) A centralized exchange operates similarly to traditional financial institutions, where a central entity (the exchange) acts as an intermediary between buyers and sellers. Key Features: Third-Party Control: The exchange holds users' funds and private keys, acting as a trusted intermediary. User-Friendly Interface: CEX platforms typically offer a smoother, more intuitive user experience with easy-to-use interfaces. Liquidity: Centralized exchanges usually have higher trading volumes and liquidity, which helps facilitate faster and larger transactions. Speed: Transactions on a CEX are typically faster because the exchange handles all operations internally. KYC/AML Requirements: Most centralized exchanges enforce Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, requiring users to verify their identity. Security Risks: Because user funds are stored on the exchange, they can be vulnerable to hacks, and users have to trust the exchange with their assets.