Decentralized crypto exchange (DEX)
DEXs use smart contracts to facilitate peer-to-peer trading without the need for users to verify their identity. They work by using smart contracts and on-chain orderbooks, which means that there is no need for users to sign up or provide any personal information like passwords when trading. This allows users to maintain privacy when transacting on the exchange.
DEXs are attractive as they provide users with greater financial autonomy over centralized exchanges. Because a DEX does not operate via a single point of control, they tend to be more resistant to hacks and other attacks. Without a centralized, governing body to make the rules, smart contracts set the law and govern the organization with pre-set conditions.
Centralized crypto exchange (CEX)
CEXs are typically orderbook-based exchanges that are owned and operated by a third party. CEXs typically require users to sign up and verify their identity through a KYC process. Users do not control the crypto assets they exchange, as they do not own the private keys to their hot wallet.
However, CEXs are attractive to users as they have features which make them easier to use, cheaper, and more secure than a DEX. Here are some advantages of a centralized exchange:
Easier to use
Users are accustomed to the process of registering and verifying their identity on a centralized exchange, which is similar to what they would encounter with a native web interface.
CEXs usually offer lower transaction fees than DEXs because they can take advantage of economies of scale to offer lower fees to users.
Since there is a third party organization running the CEX behind the scenes, issues with the technology are often able to be solved more easily and quickly, since this organization will have administrative rights over the CEX. Due to the decentralized nature of a DEX, it can take longer to get support, technical or otherwise.