Cryptointermediate

CEX vs DEX

Centralised vs decentralised exchanges — tradeoffs explained.

TL;DR

CEX = centralised exchange (Coinbase, Binance). DEX = decentralised exchange (Uniswap, Curve). CEXs are easier and have deeper liquidity. DEXs let you trade without a custodian and access tokens not listed elsewhere.

CEX trade-offs

Optimised for the average user and large flows.

→Easy onboarding — fiat deposits, simple UI
→Deep liquidity on major pairs
→Custodial — they hold your keys, you trust them
→Regulated jurisdictions — KYC, withdrawal limits
→Counterparty risk — FTX, Mt. Gox, Celsius all illustrate this

DEX trade-offs

Optimised for self-custody and access.

→You keep your keys — your funds, your responsibility
→Permissionless — anyone can trade, anyone can list
→Access to long-tail tokens unavailable on CEXs
→Gas fees per swap
→Slippage on illiquid pools
→Smart contract risk

AMMs

Most DEXs use Automated Market Makers. A pool of TokenA and TokenB has its price set by the ratio. Trading shifts the ratio, moving price. Deep pools = low slippage; thin pools = brutal slippage.

Worked example

USDC → ETH on Uniswap vs Coinbase

$1,000 USDC, want ETH.

1CoinbaseSign in, swap at displayed price + 0.4% fee. ETH lands in Coinbase wallet.
2UniswapConnect wallet → swap at AMM price + 0.3% pool fee + ~$5 gas. ETH lands in your wallet.
3Slippage at $1KNegligible on either — USDC/ETH is one of the deepest pools
4Slippage at $1MCoinbase has plenty of depth. Uniswap needs split across pools or DEX aggregator.

Takeaway

For small trades on major pairs, fees are comparable. CEX wins on convenience. DEX wins on access and self-custody.

Common mistakes

What to avoid

!Leaving large balances on CEXs long-term — 'not your keys, not your coins'
!Approving unlimited token spend — revoke at revoke.cash periodically
!Trading without checking pool liquidity
!Trusting random tokens just because they're listed on a DEX

Self-check

Test yourself

Q1Key risk of holding crypto on a CEX?+

Counterparty risk — the exchange holds keys and can go bankrupt, get hacked, or freeze withdrawals.

Q2How does an AMM determine prices?+

By the ratio of the two tokens in the pool — trading shifts the ratio along a deterministic curve.

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