Benefits of Centralized vs Decentralized Exchanges
Buying or selling cryptocurrencies usually starts with exchanges or, in other words, digital marketplaces where most crypto trading happens. For example, Binance, a leading centralized exchange (CEX), handles over $24.27 billion in daily volumes. Similarly, UniSwap is the world’s largest decentralized exchange (DEX) with over $7.25 billion in Total Value Locked (TVL).
While centralized exchanges now hold market dominance, decentralized exchanges are providing strong competition with rising volumes. And, although both CEXs and DEXs facilitate 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 th+ey also offer a few major advantages, including the following:
Centralized exchanges keep enough assets on hand to allow quick deposits and withdrawals. Thus, anyone wanting to exchange, say, their BTC for USD, is able to do so instantly on a CEX. Liquidity is in fact a CEX’s trump card, which is why they invest a lot into supplying consumers with high-speed transactions with minimal slippage.
Blockfinex, for example, offers a highly secure and robust exchange with deep liquidity for more than 500 crypto assets.
Most CEXs seek operating permissions in several countries, demonstrating their stability and competence to financial regulators. They also follow investor protection measures and issue risk alerts to clients regarding the non-reversible nature of transactions. This builds trust among consumers, allowing them to use the platform with confidence.
CEXs usually offer user-friendly interfaces, which makes trading crypto very simple at any time. They also allow users to set trades in seconds since custody and orders are all centralized, making them a go-to place for big trades.
Blockfinex is one such exchange that offers an easy-to-use interface for trading crypto. The platform allows traders to buy/sell with huge volumes without slippage and in just a few clicks.
Operating DEXs is like turning on the advanced settings in an app. They work in an open-source, trustless, and permissionless manner, providing users full transparency over their funds.
And, they also bring some of the best benefits to the table including:
DEXs do not usually seek sensitive information while onboarding. In other words, DEXs do not implement procedures like KYC (Know-Your-Customer). Everything from wallets to transactions is anonymous, which ensures utmost 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, enabling users to exercise self-custody. In simple terms, DEX users retain control over their private keys, and thereby enjoy genuine ownership of their assets.
Lower Transaction Fees
Decentralized Exchanges eliminate the need for involving middlemen, resulting in cheaper transactions overall. Most DEXs currently run on Ethereum which leads to high gas fees at times.
However, blockchains are rapidly innovating solutions to ensure negligible fees for end-users. For example, a transaction worth $100,000 costs only a few dollars on Polygon Network.
What to Choose?
It is entirely up to the user to choose which exchange to use according to their needs and demands. CEXs are ideal for those who are primarily seeking convenience and are not comfortable with self-custody. And, platforms like Blockfinex are the best bet that provide maximum convenience when trading crypto. However, DEXs may be the way to go if you are all for privacy and ownership of your funds.
On that note, both CEXs and DEXs have their share of benefits 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, boosting adoption in the process.