A Centralized Exchange (CEX) is a type of cryptocurrency exchange in which the digital assets are stored, managed and traded by an intermediary service provider. CEXs typically provide users with access to the order books and trading fees associated with each asset they offer. They also serve as a custodian for user funds, allowing them to store and manage their cryptocurrencies securely on behalf of its users.
There are several advantages that come along with using a CEX, including:
- Accessibility – Using a CEX allows users to easily buy and sell digital currencies without having to download software or hold any particular technical expertise;
- Security – By holding customer’s funds in custody, CEXs can provide strong security measures and guarantee no fraud or theft will occur;
- Liquidity – Due to the large number of buyers/sellers participating in these exchanges, there is often high liquidity available making it quick and easy for traders to execute orders;
Although there are numerous benefits that come along with using a centralized exchange, there are some drawbacks as well. These include:
- Lack of control – As all transactions must pass through the custodian’s system before being executed, customers do not have direct control over their own funds;
- High Fees – The fees associated with buying/selling on these exchanges can be quite high when compared to other types of exchanges such as decentralized exchanges or peer-to-peer platforms;
- Counterparty Risk – In cases where an intermediary holds customer’s funds directly, customers may be exposed to counterparty risk if the custodian experiences financial difficulties or becomes insolvent.