CeFi vs DeFi. Centralized exchanges (CEXs) versus decentralized exchanges (DEXs). Trading on CEXs involves trusting a centralized company with your private keys and information. It also often means a faster trading experience. Trading on DEXs means not having to ask for permission and maintaining control of your assets and information.
The differences between trading on a DEX and CEX like Coinbase used to be extraordinarily different experiences. DEXs were clunky, slow, and without liquidity, which eliminated a vast majority of the crypto trading world.
Uniswap and other DEXs have vastly improved user experience since. Let’s dive into the major differences between CEXs and DEXs.
- On a CEX, you give up control of your assets to trade on the exchange. In DEXs, you never give up control of your assets and have to self-custody assets in an Ethereum wallet like MetaMask. This might sound like a win for DEXs but for those who don’t trust themselves, self-custodying a CEX might be ideal.
- CEXs historically have had exponentially more liquidity and more trading volume.
- More recently, in 2020, DEXs have begun to outperform some CEXs in trade volume, with Uniswap booking $200M in daily trade volume regularly in the fall 2020, with over $2B traded in a single day.
- DEXs can be thought of as community-owned. Anyone can provide liquidity and then earn trading fees in the pool, while with CEXs, a centralized team that runs the exchange gets all the revenue.
- CEXs offer customer support and in many cases, excluding the bad actors and scammers, they provide a service custodying funds for traders. In DEXs, there’s often no formal customer service but there is a growing standard of having access to a team through a Discord group. Gaining access to DeFi team support has been a major advancement in 2020.
- Lastly, CEXs require sign-up with email and in most cases KYC. DEXs do not. Just connect your Ethereum wallet and go.
This isn’t about a battle between DEXs and CEXs anymore. It’s about the expansive growth opportunity in DeFi trading with DEXs that’s seemingly impossible to stop growing.