What Is the Primary Difference between a Centralized Exchange (CEX) and a Decentralized Exchange (DEX)?
A CEX is operated by a single company that holds customer funds in custody and uses a traditional order book for trading. Users must trust the exchange.
A DEX is a peer-to-peer platform built on a blockchain where users retain custody of their funds (non-custodial). Trades are executed via smart contracts, either through an order book or an Automated Market Maker (AMM).
Glossar
Decentralized Exchange
Architecture ⎊ A decentralized exchange (DEX) fundamentally diverges from traditional order book exchanges through its reliance on smart contracts and blockchain technology to facilitate peer-to-peer trading, eliminating the need for a central intermediary.
Traditional Order Book
Structure ⎊ A traditional order book is a centralized mechanism used by exchanges to match buy and sell orders for financial assets.
Automated Market Maker
Architecture ⎊ Automated Market Makers (AMMs) represent a paradigm shift in decentralized exchange (DEX) design, moving away from traditional order book models to a constant function market mechanism.
Centralized Exchange
Intermediary ⎊ This refers to a regulated or semi-regulated entity that acts as a trusted third party, facilitating the custody of client assets and the matching of buy and sell orders for cryptocurrency and associated derivatives on a centralized order book.