CEX or DEX: The Pros and Cons of Different Crypto Exchanges
Thanks to a preponderance of trading platforms, fiat-crypto mobile banks, and slick applications like Cash App, buying digital assets has never been easier. Projects gearing up to launch a native token, however, face a dilemma: should they list on a centralised (CEX) or decentralised exchange (DEX)?
At Revuto, we grappled with this question ourselves when preparing to list our Cardano-native asset REVU. As you’ll know, we eventually opted to launch the long-awaited token on two tier-1 CEXes, namely KuCoin and Gate.io, and the response from our community was phenomenal.
That said, while there are many benefits to launching on a well-established CEX, there are certainly merits to using their decentralized counterparts. Which is why we decided to list REVU on both BitMart and Minswap.
We are not alone in acknowledging the advantages of listing on both platforms. Whatever your preference, there are pros and cons to consider. With that in mind, we figured now would be a good time to take a closer look at them right here on our blog.
The Pros and Cons of Centralised Exchanges
Let’s start with a definition: centralised exchanges are trading platforms operated by a company that facilitates trades by maintaining an order book.
Despite the growth of DEXes in recent years, most crypto trading still occurs on centralised exchanges like KuCoin, Coinbase, and Binance.
By their very nature, centralised platforms are custodial, meaning users don’t have responsibility for their private key; instead, the exchange takes custody of the assets themselves, the same way a bank does with our fiat. While this frees investors from the personal risk of storing a seed phrase, some people in the industry believe it goes against the decentralised ethos at the heart of crypto.
The main benefits of centralised exchanges include faster order execution and greater token liquidity. While it’s possible to swap a large volume of stablecoins on some decentralised exchanges, centralised venues are geared up to facilitate heavy trading. This is why major crypto investments by publicly-traded firms like MicroStrategy and Tesla are carried out on centralised platforms.
Additional advantages to listing a token on a CEX include usability. Since CEX is operated by a legal entity rather than being automated, there is a strong emphasis on UX. Many centralised platforms cater to a broad range of markets and have fiat on/off-ramps, allowing users to fund their accounts using their local currency. Some even offer crypto-fiat debit cards.
What about the downsides? Well, because CEXes retain user funds, they are frequently targeted by hackers. (In fairness, this reality has compelled many operators to store the bulk of customer funds offline in cold storage.) Centralised trading platforms are also worried about falling foul of regulators and so abide by strict KYC/AML rules that force users to prove their identity. Again, this is an element that some users feel infringes on their right to privacy — and they are more likely to use a DEX as a result…
Benefits and Drawbacks of Decentralised Exchanges
Decentralised exchanges operate on a peer-to-peer basis, without the need for a third party. Built atop blockchain networks that support smart contracts, decentralised exchanges/liquidity protocols enable users to retain full custody of their funds with all executed trades incurring a transaction and trading fee.
Although DEXs generally aren’t in the same league as their centralised counterparts when it comes to user experience, they offer several distinct benefits such as greater uptime and availability since they don’t go offline due to maintenance. In the case of aggregators that compare prices across multiple DEXs and offer the best rate, they also offer better pricing — and because there’s no KYC to worry about, users can trade anonymously.
Provided users take simple precautions to protect their seed phrase, DEXs can be a godsend, especially because they provide another avenue for generating income: multiple DEXs support peer-to-peer borrowing, meaning you can earn passively yield through staking assets that are used by the exchange to support day-to-day trading.
Naturally, there are drawbacks to consider, too: a lack of fiat rails, a steeper learning curve, lower liquidity/higher spreads. But for some, the tradeoffs are absolutely worth it.
A Two-Trade Solution
Ultimately, it should be considered a net good for the industry that users have a wide range of options at their disposal when they want to buy/sell crypto assets. Don’t want the hassle of KYC? Use a DEX. Keen to take advantage of technical features, fiat integrations, and a simple user interface? A CEX is the way to go.
For the reasons stated above, especially if you want to “go big” and grow fast, we believe it is important to list on both, centralised and decentralized exchanges. More importantly, because Revuto will offer Debit Cards in the future, working with a CEX is a must. Still, Revuto is a platform that wants to service all participants in today’s subscription economy, and as such, it’s imperative to welcome crypto users from both sides of the fence. We’ll never tell you which platform is right for you; that’s your decision to make!
Your Revuto Team
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