6.1 Centralized (CEXs) vs. Decentralized Exchanges (DEXs)

What is a Centralized Exchange?

A Centralized Exchange (CEX) is a platform where third-party entities (central organizations) manage and oversee cryptocurrency trades. These exchanges control the order books, set fees, and provide customer support, making them more user-friendly but less private. They also handle all the technical blockchain details for you, so you don’t need a separate crypto wallet to trade. They are similar to traditional stock exchanges, where a central authority facilitates trades between buyers and sellers.

Market Share and Volume

As of Q2 2025, centralized exchanges continue to dominate the crypto market with around 75–80% of total trading volume, although the share is gradually declining as DEX usage increases. In Q2 alone, CEXs processed over 3.9 trillion US dollars in spot volume, compared to ~876 billion on DEXs.
CEXs remain the go-to platforms for institutional trading, fiat on-ramps, and regulatory-compliant services, especially in regions like the U.S., EU, and Southeast Asia.

Why They Remain Dominant

Centralized exchanges offer higher liquidity, faster trade execution, deep order books, and access to leveraged and derivatives products that most DEXs can’t match at scale. They also provide fiat integration (bank deposits, cards), account recovery, and customer service, which appeals to mainstream users and institutions. Regulatory licenses in key markets also allow them to serve clients in ways DEXs often cannot.

How They Work

• CEXs operate on order book models, where buy and sell orders are matched by the exchange’s matching engine. Users typically deposit assets into exchange-controlled wallets (custodial model) to trade.
• Orders can be market, limit, stop, or advanced types, and may be executed instantly depending on liquidity and matching.
• The exchange handles all aspects of custody, order routing, price feeds, and settlement internally.

Fees and Costs

• CEX spot trading fees generally range from 0.10% to 0.30% per trade, depending on the user's tier and trading volume. Many exchanges offer fee discounts for using native tokens (e.g. BNB on Binance, CRO on Crypto.com) or high-volume accounts.
• Derivatives trading often comes with lower fees (e.g. 0.01–0.05%) and more flexibility.
• CEXs may also charge withdrawal fees, margin interest, and fiat conversion fees depending on the service.

Key Features of CEXs

• Central Authority: A third party (such as Binance or Coinbase) is responsible for managing the exchange.
• Order Book System: CEXs use an order book to match buy and sell orders in real-time, providing a faster and more efficient trading experience by queuing unmatched orders until a match occurs.
• Liquidity: Due to their large user base, CEXs typically offer high liquidity, allowing users to quickly buy or sell assets with minimal slippage.
• User-Friendly: CEXs generally offer simple, intuitive interfaces that are easy for beginners to navigate, with features like one-click buying and selling, integrated wallets, and clear price charts.
• KYC/AML Requirements: Most centralized exchanges require users to undergo Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, which involve submitting identification documents and proof of address.

Examples of CEXs

• Coinbase: Founded in 2012 and publicly listed on NASDAQ. As of mid‑2025, it has about 120 million monthly users, with roughly 8.7 million monthly transacting users.
  It holds ~$404 billion in digital assets under custody (end‑2024), and is a major custodian of Bitcoin (over 12% of circulating BTC) and staked Ethereum (~11%).
  Recently, Coinbase joined the S&P 500 (May 2025) and acquired Deribit (derivatives platform) for about $2.9 billion.
• Binance: Still the largest exchange by trading volume globally. Under its CEO Richard Teng (since November 2023), it’s claimed to have approximately 240 million users (up significantly over recent years), and is pushing to increase regulatory compliance in many jurisdictions.
  One major regulatory change: to comply with Europe’s Markets in Crypto-Assets Regulation (MiCA) framework, Binance is delisting multiple stablecoins (including USDT and others) for users in the EEA by March 31, 2025.
• Kraken: Founded in 2011; known for strong security and regulatory focus. Key updates in 2025 include:
  • It secured UK FCA approval for an electronic money services licence, enabling it to issue e‑money and improve fiat on/off‑ramps.
  • It also obtained a Markets in Financial Instruments Directive (MiFID) licence in the EU (via a Cypriot investment firm), allowing more advanced services (e.g. derivatives) in certain EU markets.
  • Financial performance: In the first quarter of 2025, revenue was approximately 472 million US dollars, representing a year-over-year increase of about 19% due to higher trading volume.

Advantages of CEXs

• High liquidity ensures quick trade execution.
• support many fiat currencies and payment methods
• Customer support is readily available.
• They usually offer insurance or reimbursement policies against hacks.
• Because they handle custody, you don’t directly manage private keys – which is convenient but means you must trust the exchange’s security.
• User-friendly for beginners.

Disadvantages of CEXs

• Centralization: Users must trust the exchange with their assets and personal data.
• Hacking Risk: Centralized platforms are often targets for hackers because they store large amounts of user funds.
• Privacy Concerns: KYC requirements can compromise user privacy.
• Geographical Restrictions: CEXs may restrict access in certain countries to comply with local regulations, limiting the platform’s availability.
• Jurisdictional Service Adjustments: CEXs may adjust their offerings by jurisdiction, meaning certain coins or features may not be available in regions like the US or EU due to legal issues.
• Liquidity and Slippage: While CEXs offer high liquidity, thin markets or periods of high volatility can still lead to order slippage or delays, affecting trade execution.

Regional Differences

United States: Crypto exchanges are regulated as Money Services Businesses (MSBs) and must register with FinCEN, adhering to KYC and AML requirements. The SEC and CFTC continue to debate classification of cryptocurrencies, leading to state-level complexities like the BitLicense in New York. Some exchanges have limited operations in certain states due to regulatory uncertainty.

Europe: The MiCA regulation, effective in 2025, standardizes crypto rules across the EU, requiring KYC/AML compliance and stablecoin reserves. This aims to enhance consumer protection and ensure stablecoin transparency.

China: Crypto trading remains banned, with the government continuing to crack down on mining and cross-border payments. However, many users circumvent restrictions via VPNs or offshore exchanges, and stablecoin usage persists in underground markets.

Developing Regions: Countries like Nigeria, Venezuela, and Turkey use crypto to combat currency volatility and hyperinflation, with many relying on stablecoins and CEXs. In Africa, platforms like Luno are growing, though regulatory frameworks remain fragmented.

Global Advice: Always check local regulations and use trusted, regulated exchanges or remittance services to ensure compliance and security.

Decentralized Exchanges (DEXs)

What is a Decentralized Exchange?

Building upon the structured environment of CEXs, decentralized exchanges (DEXs) offer a peer-to-peer alternative that aligns with blockchain's core principles of autonomy and transparency. Operating without central authorities, DEXs leverage smart contracts on blockchains like Ethereum and BNB Chain to automatically match buyers and sellers. Popular examples include Uniswap (Ethereum), PancakeSwap (BNB Smart Chain) and SushiSwap. On a DEX you trade directly from your own wallet, so you always keep custody of your crypto until a trade executes. There is no central company: the exchange logic is public code, and trades happen peer-to-peer through liquidity pools or automated market makers.

Market Share and Volume

As of mid‑2025, DEXs have reached about 20‑25% of global spot trading volume, peaking in May when they accounted for roughly 25% of spot‐market activity.
The ratio of DEX vs. CEX volume has been climbing. In Q2 2025, DEXs saw ~$876 billion in volume, while CEXes had ~$3.9 trillion—meaning DEXs had about 23% of the combined trading volume in that quarter.

Why They Surge During Bull Markets

Bull markets tend to drive speculative trading, memecoin launches, and rapid token listings. DEXs benefit because they offer access to emerging tokens, greater resistance to censorship, fewer listing delays, and less friction for traders who prefer self‑custody. These dynamics tend to push traders toward DEXs in up‑markets. (Implied by the large volumes on chains like Solana during memecoin phases.)

How They Work

• Most DEXs still use Automated Market Maker (AMM) models. Liquidity providers deposit token pairs (for example, ETH/USDC) into pools. In return, LPs earn part of the trading fees. When someone swaps one token for another (e.g. ETH → USDC), they interact with a smart contract pool; the swap changes the relative balances in that pool which adjusts the price via the AMM’s invariant (e.g. constant product).
• Some DEXs also include order‑book or hybrid models. For example, on Solana there are decentralized order books (e.g. via Serum/OpenBook) or AMMs with order‑book‑like functionality.

Fees and Costs

• Typical swap fees on many AMM DEXs are in the range of 0.2‑0.30% for retail trades, though this can vary depending on chain, pair liquidity, slippage, etc. (Some stablecoin‐focused pools have much lower fees/slippage.)
• In addition to the swap fee, there is always the blockchain (“gas”) cost for executing the transaction. For high throughput chains (e.g. Solana, some Layer‑2s), gas is lower; for Ethereum mainnet it can be materially higher.
• Comparatively, fee levels for DEXs are now quite competitive with CEX spot fees. A recent report found average spot fees on CEXs to be about 15 basis points, versus ~12 basis points for DEXs.

Key Features of DEXs

• No Central Authority: Trades occur peer-to-peer (P2P) directly between users, without the need for a centralized entity.
• Smart Contracts: DEXs use blockchain-based smart contracts to facilitate trades automatically.
• Non-Custodial: Users maintain control of their funds at all times. There is no need to deposit funds into the exchange.
• Privacy: DEXs generally do not require KYC, offering greater privacy.

Examples of DEXs

• Jupiter: A leading decentralized exchange aggregator on the Solana blockchain, known for routing trades through multiple liquidity sources to ensure optimal pricing and low slippage.
• Curve Finance: A DEX optimized for stablecoin and wrapped asset trading, offering efficient, low-fee swaps with minimal impermanent loss.
• Trader Joe: A decentralized exchange on Avalanche that combines traditional AMM functionality with lending and yield farming features, catering to a broad DeFi user base.

Advantages of DEXs

• Control of Funds: Since users retain control over their private keys, DEXs reduce the risk of losing funds in a hack.
• Privacy: No KYC or registration is required, enabling users to trade anonymously and access markets globally.
• Security: Decentralized, meaning there is no central point of failure or attack.
• DEXs list a much wider variety of tokens (anyone can create a token and add liquidity). This enables early access to new crypto projects.
• DEXs are censorship-resistant and not tied to a country’s regulations; for instance, even where exchanges are banned, a user with a crypto wallet can still swap on-chain.

Disadvantages of DEXs

• Lower Liquidity: Generally, DEXs have less liquidity than centralized exchanges, which can lead to higher slippage.
• Complexity: The interface and experience on DEXs can be more complicated, especially for beginners.
• Slower Transactions: Smart contract execution can be slower than centralized exchanges, especially during network congestion.
• DEXs cannot directly accept fiat—you must first obtain crypto (usually on a CEX, ATMs, or peer-to-peer) before using them.
• because smart contracts are code, there’s risk of bugs or exit scams if you use an unvetted DEX or token pool.

Comparing CEXs and DEXs

When to Use a CEX

• If you're a beginner and want ease of use.
• When high liquidity is essential for large trades.
• If you want support services (e.g. in case of transaction issues).
• When you're looking for a user-friendly experience.

When to Use a DEX

• If you value privacy and control over your assets.
• If you're comfortable with self-custody (managing your own wallet).
• When trading less popular coins or tokens.
• If you want to avoid high exchange fees, especially on Ethereum-based platforms.

Conclusion

Centralized and decentralized exchanges serve the same purpose but with different operational philosophies. CEXs provide a smooth, secure, and familiar experience, making them ideal for beginners. However, they come with risks such as security breaches and privacy concerns. DEXs, on the other hand, offer more control, privacy, and security but can be less user-friendly and have lower liquidity.

It's essential for each user to weigh the benefits and risks based on their specific needs, preferences, and experience level. Whether you choose a CEX or DEX depends on how much control you want over your funds, how comfortable you are with technology, and the type of trading experience you seek.