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What Are the Key Differences in How Liquidity Is Provided in Centralized and Decentralized Crypto Exchanges?

Centralized exchanges use a central order book, while decentralized exchanges use user-funded liquidity pools.
Greeks.Live03.11.25

What Are the Key Differences in How Liquidity Is Provided in Centralized and Decentralized Crypto Exchanges?

In centralized exchanges (CEXs), liquidity is primarily provided by the exchange itself, professional market makers, and the order books of its users. This creates a centralized pool of liquidity.

In contrast, decentralized exchanges (DEXs) rely on automated market makers (AMMs) and liquidity pools. Users, known as liquidity providers, deposit pairs of assets into these pools in exchange for trading fees.

This creates a decentralized and permissionless system for providing liquidity. The key difference is the reliance on intermediaries in CEXs versus smart contracts in DEXs.

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