CEX vs. DEX
How cryptocurrency exchanges work
Crypto exchanges fall into two categories: centralised (Coinbase, Kraken, Binance — easy to use, custody your coins, regulated, but a single point of failure) and decentralised (Uniswap, dYdX — non-custodial, on-chain, no KYC, but require self-custody know-how). Use centralised for ease of fiat on/off-ramping; move long-term holdings to a hardware wallet you control.
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Try calculatorKey takeaways
04 · ideas- Centralized exchanges hold your crypto on your behalf (custodial)
- Decentralized exchanges run on smart contracts with no company custody
- Maker-taker fee structures are the most common pricing model
- Exchange insolvency has historically meant potential loss of user funds
A cryptocurrency exchange is a platform where buyers and sellers of crypto assets are matched.
Centralized exchanges (CEX): A company operates the platform. Users deposit funds and the exchange holds them. Trades happen in the exchange's internal ledger. The exchange takes custody of user assets.
Decentralized exchanges (DEX): Smart contracts on a blockchain match trades automatically. No company holds your funds. Users retain control of their private keys throughout.
Custody difference: When you hold crypto on a centralized exchange, you hold a claim against the exchange rather than the crypto directly. The phrase common in crypto communities — "not your keys, not your coins" — reflects this distinction.