How Does a Centralized Exchange (CEX) Minimize Slippage Compared to a DEX?
CEXs use traditional order books with deep liquidity provided by professional market makers who are incentivized by lower fees and high volume. This depth means large orders can be filled with minimal price impact.
DEXs, especially AMMs, rely on liquidity pools that can be shallow, leading to higher slippage for large orders.
Glossar
Centralized Exchange
Custody ⎊ Centralized Exchanges function as custodians for digital assets, managing private key infrastructure and providing a regulated framework for asset holding, a critical component for institutional adoption within cryptocurrency markets.
Minimize Slippage
Definition ⎊ Slippage refers to the difference between the expected price of a trade and the actual price at which the order is executed.
Professional Market Makers
Role ⎊ Professional market makers are institutional entities that provide liquidity to financial markets by simultaneously quoting both buy and sell prices for assets.
Liquidity Pools
Mechanism ⎊ Liquidity pools represent a fundamental shift in market microstructure, functioning as decentralized exchange (DEX) components that facilitate trading via automated market makers (AMMs).
Traditional Order Books
Mechanism ⎊ Traditional order books represent a deterministic system for price discovery and trade execution, fundamentally relying on the aggregation of discrete buy and sell orders submitted by market participants.