CEX vs DEX

Advantages and Prospects of CEX/DEX Cryptocurrency Exchanges
Firstly, these two exchanges are not directly comparable. We cannot simply view centralized exchanges as purely trading platforms. Due to regulatory gaps, centralized exchanges more closely resemble comprehensive investment banks, covering listing, lending, custody, spot trading, derivatives trading, clearing, market-making, acceptance, strategic investments, and various other services (for example, COINBASE's trading fee income accounted for about 50% of its total revenue in 2023). The broad category of centralized exchanges should be compared to the entire DeFi ecosystem rather than just decentralized spot trading exchanges. However, decentralized exchange business is also expanding rapidly. Therefore, below we will only compare the narrow definition of centralized exchanges and decentralized exchanges.

Centralized Exchanges (CEX)
Advantages:

• Relatively user-friendly interface: CEXs typically offer easy-to-use interfaces suitable for beginners.
• High liquidity: Mainstream CEXs attract a large number of users and trading volumes, providing ample asset liquidity.
• Fiat gateways and customer support: CEXs support fiat currency deposits and withdrawals, and provide customer support where customers can recover their accounts even if they forget their passwords.
• No hassle with cross-chain and GAS fees: CEXs allow deposits and withdrawals without cross-chain transactions and do not require GAS fees for trading.

Disadvantages:

• Hacking risks: Since assets are concentrated on exchanges, a hack of one exchange could lead to the loss of all users' funds.
• Personal information requirements: CEXs typically require users to undergo Know Your Customer (KYC) verification.
• Slow listing process: Mainstream centralized exchanges often have specific requirements for listing, leading to situations where many listings result in buying into pre-existing positions.
• Falsely inflated trading volumes: Centralized exchanges generally have inflated trading volumes, and trading data is often non-transparent.
• Inability to guarantee customer trading privacy: In certain situations, centralized exchanges may become counterparties to customer trades, compromising customer trading privacy.
• Absolute central decision-making: Decisions on centralized exchanges are usually made by one or a few executives, leading to weak risk tolerance at the individual level. If one person absconds or encounters issues, the entire exchange may be at risk.

Decentralized Exchanges (DEX)
Advantages:

• Control of funds: Users have complete control over their assets without the need to trust centralized institutions.
• Privacy: DEXs do not require KYC, allowing users to remain anonymous.
• Permissionless access: DEXs allow anyone to participate in trading without approval (excluding geographical restrictions).
• Traceable on-chain trading data: Every transaction on DEXs can be traced on-chain, providing transparent trading data.
• Liquidity rewards: DEXs allow anyone to provide liquidity and receive liquidity rewards.
• Open-source code: DEX code is fully open-source and subject to public security audits.

Disadvantages:

• MEV attacks: DEXs are susceptible to MEV attacks such as sandwich attacks on certain blockchain transactions.
• Risk of buying fake coins and rug pulls: Many investors who do not check contracts carefully may buy fake coins or fall into rug pulls.
• Insecurity of smart contracts: DEX smart contracts are vulnerable to hacking, and in many cases, attacks cannot be traced back.