CEX or DEX? Crypto Exchanges

Everybody into the pool!

John Cousins


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How do we actually buy and sell, and trade crypto?

We do it on an exchange.

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How are the prices of cryptocurrencies determined?

Markets are price discovery mechanisms. Exchanges access markets where buys, sells and trades are made to determine an asset’s price.

Crypto exchanges trade 24/7 every day, unlike stock exchanges which run during working hours Monday-Friday and are closed on weekends and holidays. There are two main kinds of exchanges for crypto: centralized and decentralized.

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Order matching, the ability to match buyers with sellers, is a crucial difference between CEX and DEX.

Centralized exchanges (CEXs) are easy to use and come with an attached wallet to store your assets. A CEX is operated by a company that owns it in a centralized way. CEXs offer enhanced liquidity, the ability to exchange one currency for another in a speedy and low-cost manner through deploying their capital and assets, and market makers that have order books and actively trade.

Decentralized exchanges (DEXs) work with no human intermediaries. Some DEXs are governed by a decentralized autonomous organization (DAO) where the holders of the DAO coin vote on decisions relative to the running of the DEX. DEXs trade with a programmed protocol based on functionality programmed on the blockchain in smart contracts.

Photo by Shubham Dhage on Unsplash

Order matching liquidity in a DEX is achieved through a liquidity pool that balances out buy and sell orders. A liquidity pool is a bundle of cryptocurrency assets that are held in a smart contract and can be used for exchanges. Investors lend their crypto to the pool in exchange…