CEX and DEX

A CEX is a centralized exchange: a company holds your funds and runs the order book. A DEX is decentralized: swaps run through smart contracts and you keep your keys.

How it works

On a CEX you sign up, pass KYC (identity checks), deposit and trade through an order book. It is convenient: you get bank deposits and withdrawals, futures, support and deep liquidity. But coins in your account effectively belong to the exchange until you withdraw them.

On a DEX you connect your own wallet and swap tokens directly through a smart contract. Most often the price comes from a liquidity pool, a reserve of two tokens supplied by other users. There is usually no sign-up, but you pay a network fee (gas) and you own every mistake.

The risks differ. On a CEX: bankruptcy, hacks or a frozen account; large exchanges have collapsed with customer money more than once. On a DEX: smart-contract bugs, fake tokens, slippage and phishing sites.

Example with numbers 1

You buy $500 of ETH with USDT. On a CEX the fee is 0.1%, or $0.50, and the ETH stays on the exchange. On a DEX you swap from your own wallet: a 0.3% pool fee ($1.50) plus network gas, but the ETH lands with you right away.

Example with numbers 2

You swap $2,000 into a small token on a DEX whose pool holds only $20,000 of liquidity. Because of slippage you get about $1,800 worth of tokens, roughly 10% less than expected.

Common mistake

On a CEX the main mistake is leaving all your coins there for years: "not your keys, not your coins". On a DEX it is buying a token by its name from search instead of by the contract address from an official source: scammers create copies with the same ticker. Check the contract address, set a sensible slippage tolerance and do not grant unlimited token approvals unless you need to.

Questions and answers

What is the difference between a CEX and a DEX in simple terms?

A CEX is an exchange company that holds your money like a bank. A DEX is a program where you swap tokens straight from your own wallet.

Which is safer, a CEX or a DEX?

Neither is fully safe. On a CEX you trust a company, on a DEX you trust the code and yourself. Many people trade on a CEX and keep long-term holdings in their own wallet.

Do DEXs require KYC?

Usually not: you just connect a wallet. But some DEX websites block certain countries, and your local taxes and laws still apply.

CEX and DEX

How it works

Questions and answers

Related terms

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