# How Does an AMM Differ from a Centralized Exchange (CEX)? ⎊ Path

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

---

## How Does an AMM Differ from a Centralized Exchange (CEX)?

A CEX uses a traditional order book model, matching buyers and sellers, and is run by a central company. An AMM is decentralized and uses a smart contract-based liquidity pool and an algorithm to facilitate trades.

AMMs offer permissionless trading directly against the pool, eliminating the need for a centralized intermediary.

- [What Is the Difference between an Order Book DEX and an AMM-based DEX?](https://learn.greeks.live/path/what-is-the-difference-between-an-order-book-dex-and-an-amm-based-dex/)

- [How Does a Request for Quote (RFQ) System Differ from an Order Book Exchange in Derivatives?](https://learn.greeks.live/path/how-does-a-request-for-quote-rfq-system-differ-from-an-order-book-exchange-in-derivatives/)

- [How Does a Decentralized Exchange’s Automated Market Maker (AMM) Model Handle Slippage Differently than a Traditional Order Book?](https://learn.greeks.live/path/how-does-a-decentralized-exchanges-automated-market-maker-amm-model-handle-slippage-differently-than-a-traditional-order-book/)

- [What Are the Advantages of a CEX’S Order Book Model over a DEX’s Liquidity Pool for Minimizing the Bid-Offer Spread?](https://learn.greeks.live/path/what-are-the-advantages-of-a-cexs-order-book-model-over-a-dexs-liquidity-pool-for-minimizing-the-bid-offer-spread/)

- [What Is the Difference between an Order Book and a Liquidity Pool?](https://learn.greeks.live/path/what-is-the-difference-between-an-order-book-and-a-liquidity-pool/)

- [How Does the Lack of a Central Order Book on an Automated Market Maker (AMM) DEX Change the Nature of Front-Running?](https://learn.greeks.live/path/how-does-the-lack-of-a-central-order-book-on-an-automated-market-maker-amm-dex-change-the-nature-of-front-running/)

- [How Does the ‘Fee Structure’ Differ between a Centralized Exchange (CEX) and a Decentralized Exchange (DEX) AMM?](https://learn.greeks.live/path/how-does-the-fee-structure-differ-between-a-centralized-exchange-cex-and-a-decentralized-exchange-dex-amm/)

- [What Is the Fundamental Difference between an Order Book and an Automated Market Maker (AMM)?](https://learn.greeks.live/path/what-is-the-fundamental-difference-between-an-order-book-and-an-automated-market-maker-amm/)

## Glossar

### [Liquidity Pool](https://learn.greeks.live/area/liquidity-pool/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Mechanism ⎊ A liquidity pool functions as an incentivized counterparty in decentralized finance, aggregating capital from multiple participants to facilitate trading without traditional intermediaries.

### [Permissionless Trading](https://learn.greeks.live/area/permissionless-trading/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Execution ⎊ Permissionless trading refers to the execution of financial transactions on decentralized platforms without requiring approval from a central authority.

### [Centralized Exchange](https://learn.greeks.live/area/centralized-exchange/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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.

## Discover More

### [How Does the Concept of an Insurance Fund Differ between a Centralized and a Decentralized Futures Exchange?](https://learn.greeks.live/path/how-does-the-concept-of-an-insurance-fund-differ-between-a-centralized-and-a-decentralized-futures-exchange/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Concept of an Insurance Fund Differ between a Centralized and a Decentralized Futures Exchange?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Autonomous-Organization-Governance-Mechanism-Token-Allocation-Structure-Abstract-Visualization.webp)

CEX fund is centrally managed and opaque; DEX fund is governed by smart contract/DAO, transparent, and protocol-based.

### [Are Decentralized Finance (DeFi) Derivatives Taxed the Same as Centralized Exchange Derivatives?](https://learn.greeks.live/path/are-decentralized-finance-defi-derivatives-taxed-the-same-as-centralized-exchange-derivatives/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Are Decentralized Finance (DeFi) Derivatives Taxed the Same as Centralized Exchange Derivatives?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Exchange-Protocol-Mechanism-High-Frequency-Algorithmic-Trading-Structure-Analysis.webp)

Principles are similar (capital gains/losses), but DeFi introduces complexities like gas fees as separate taxable events.

### [What Is the Difference between a Futures Exchange and a Spot Exchange?](https://learn.greeks.live/path/what-is-the-difference-between-a-futures-exchange-and-a-spot-exchange-2/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Difference between a Futures Exchange and a Spot Exchange?](https://learn.greeks.live/wp-content/uploads/2025/10/Intertwined-Digital-Asset-Surveillance-Modules-Reflecting-Hedging-Strategies-in-Decentralized-Finance-Futures.webp)

Spot exchange is for immediate asset delivery; futures exchange trades leveraged derivative contracts with margin and an insurance fund.

### [What Is the Main Difference between a Centralized Exchange (CEX) and a Decentralized Exchange (DEX)?](https://learn.greeks.live/path/what-is-the-main-difference-between-a-centralized-exchange-cex-and-a-decentralized-exchange-dex/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Main Difference between a Centralized Exchange (CEX) and a Decentralized Exchange (DEX)?](https://learn.greeks.live/wp-content/uploads/2025/10/Machined-Metal-Structure-Representing-Decentralized-Exchange-Liquidity-Pool-Balancing-Mechanism-Dynamics.webp)

CEX is custodial and centrally controlled; DEX is non-custodial and operates via smart contracts.

### [Explain the Role of a CEX's Hot and Cold Wallets in Managing Double-Spend Risk](https://learn.greeks.live/path/explain-the-role-of-a-cexs-hot-and-cold-wallets-in-managing-double-spend-risk/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Explain the Role of a CEX's Hot and Cold Wallets in Managing Double-Spend Risk](https://learn.greeks.live/wp-content/uploads/2025/10/Minimalist-Depiction-of-Decentralized-Finance-Protocol-Interface-Interacting-with-Volatility-Surface-Approximation.webp)

Cold wallets (offline) hold the majority of funds safely, while hot wallets (online) hold minimal funds to limit potential losses from an attack.

### [How Does Regulatory Compliance Affect a Centralized Oracle's Operation?](https://learn.greeks.live/path/how-does-regulatory-compliance-affect-a-centralized-oracles-operation/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Regulatory Compliance Affect a Centralized Oracle's Operation?](https://learn.greeks.live/wp-content/uploads/2025/10/Sleek-Ovoid-Blockchain-Governance-Module-Reflection-Demonstrating-Impermanent-Loss-Mitigation-Strategies.webp)

A centralized oracle must comply with KYC/AML and financial regulations, which can compromise data censorship resistance and introduce legal risk.

### [What Are the Key Advantages of a Hybrid CEX/DEX Model for Derivatives Trading?](https://learn.greeks.live/path/what-are-the-key-advantages-of-a-hybrid-cex-dex-model-for-derivatives-trading/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Key Advantages of a Hybrid CEX/DEX Model for Derivatives Trading?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-View-of-Digital-Asset-Custody-Mechanism-Coupling-with-Off-Exchange-Tokenized-Security-Settlement.webp)

Combines CEX speed/spread with DEX self-custody/transparency, offering fast, secure, and liquid derivatives trading.

### [How Does a Concentrated Liquidity Position Differ from a Limit Order on a Traditional Exchange?](https://learn.greeks.live/path/how-does-a-concentrated-liquidity-position-differ-from-a-limit-order-on-a-traditional-exchange/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does a Concentrated Liquidity Position Differ from a Limit Order on a Traditional Exchange?](https://learn.greeks.live/wp-content/uploads/2025/10/X-Ray-Chronometer-Hand-Vectors-Suggesting-Implied-Volatility-Skew-in-Decentralized-Finance.webp)

Concentrated liquidity provides market liquidity and earns fees; a limit order takes liquidity and is a one-time trade instruction.

### [How Does a Constant Sum Market Maker (X+y=k) Differ from a Constant Product AMM?](https://learn.greeks.live/path/how-does-a-constant-sum-market-maker-xyk-differ-from-a-constant-product-amm/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does a Constant Sum Market Maker (X+y=k) Differ from a Constant Product AMM?](https://learn.greeks.live/wp-content/uploads/2025/10/Crystalline-Geometric-Structure-Modeling-Decentralized-Autonomous-Organization-Governance-Mechanism-Evolution.webp)

Constant sum (x+y=k) has constant price and zero slippage but is easily drained; constant product (x · y = k) has variable price and infinite liquidity.

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**Original URL:** https://learn.greeks.live/learn/how-does-an-amm-differ-from-a-centralized-exchange-cex/
