Why Are Decentralized Exchange (DEX) Options Often More Susceptible to Slippage than Centralized Exchange (CEX) Options?
DEX options typically use Automated Market Makers (AMMs) or have lower liquidity and fragmented order books compared to centralized exchanges. AMM models, while capital efficient, often result in higher slippage for large trades due to the nature of their pricing curves.
Furthermore, transaction finality on a blockchain can introduce latency, increasing the chance of unfavorable price changes before the trade is confirmed.
Glossar
Decentralized Exchange (DEX)
Platform ⎊ A Decentralized Exchange (DEX) is a cryptocurrency trading platform that operates without a central intermediary, allowing users to trade digital assets directly from their non-custodial wallets.
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.
Dex Options
Mechanism ⎊ Decentralized exchange (DEX) options represent derivative contracts facilitated by smart contracts on blockchain networks, enabling users to trade the right, but not the obligation, to buy or sell a cryptocurrency at a predetermined price on or before a specified date.