DEX vs CEX: Why Are Retail Investors Increasingly Choosing Decentralized Exchanges?

Question

Recently, there’s been a hot topic in the community—should you use a centralized exchange or a DEX? This isn’t a minor question; it actually reflects a major shift happening in the crypto market.

Core Differences Between the Two Types of Exchanges

Asset security is the biggest distinction. When you trade on a CEX, the exchange holds your wallet keys. If something goes wrong (like the Mt.Gox incident or more recently FTX), users’ assets can go to zero. DEXs are different—your coins always stay in your own wallet. The exchange just provides matching services and never has custody of your assets.

Trading speed and cost are where DEXs fall short. CEXs operate on centralized databases, so trades are blazing fast. DEXs require every transaction to be confirmed on-chain, and gas fees are much higher. For example, on Ethereum-based DEXs, just the transaction fees can make small trades unprofitable.

Number of tokens: CEXs have a listing threshold—projects must pass a review to be listed. On DEXs, anyone can launch a token, so liquidity quality varies, but the selection is much broader.

How DEXs Took Off in Recent Years

Before Uniswap appeared in 2018, DEX trading volume was only in the $5 million range. Uniswap introduced the automated market maker (AMM)—a breakthrough that uses smart contracts instead of traditional order books, letting regular users become liquidity providers and earn fees.

The DeFi Summer of 2020 totally changed the landscape: Curve specialized in stablecoins, AAVE offered lending, Uniswap V2 upgraded… By year-end, DEX trading volume had soared to $2.9 billion.

DEXs Now Fall Into Two Camps

Order book model (dYdX, Loopring): Operates like a CEX in logic, but data is decentralized. The problem is high gas fees make order book DEXs on Ethereum basically unusable—they have to rely on Layer 2 solutions or low-fee chains like Solana.

Liquidity pool model (Uniswap, Curve): More innovative. You deposit two types of tokens into a pool, and anyone can trade against the pool using algorithms. This approach occasionally faces slippage issues, but it’s simple and efficient.

Can DEXs Replace CEXs? The Reality Is Complicated

To be blunt, both types of exchanges coexist right now. CEXs offer a better user experience and stronger liquidity. After DeFi Summer, users have become more cautious about centralized risks. But DEXs’ high costs and inefficiencies are still obstacles—small retail traders face steep costs on DEXs.

In the long term, as Layer 2 scaling and cross-chain bridges mature, DEXs’ weaknesses will gradually be addressed. The future may be a hybrid ecosystem: large trades and stablecoin swaps on DEXs (for maximum security), while small, frequent trades stick to CEXs. You need both approaches.