What is a Centralized Exchange (CEX)?
A Centralized Exchange (CEX) is a digital platform for trading cryptocurrencies that is operated by a centralized authority or organization. Unlike decentralized exchanges (DEXs), which rely on peer-to-peer transactions and smart contracts, a CEX acts as an intermediary between buyers and sellers. Users place their funds on the exchange, trusting it to manage their transactions and secure their assets.
CEXs are known for offering high liquidity, quick transaction processing, and robust customer support. These platforms simplify cryptocurrency trading for users, providing features like fiat-to-crypto trading pairs, spot trading, futures trading, and sometimes staking services. Due to their centralized structure, CEXs can efficiently manage large trading volumes and support a wide range of cryptocurrencies, making them popular choices for both new and experienced traders.
While Centralized Exchanges are user-friendly and offer added security layers, they require users to trust the platform with their funds, which can present risks if the exchange experiences a hack or fraud incident. As a result, users often weigh the convenience of using a CEX against the risk of entrusting assets to a third-party custodian.
Examples of popular CEXs include Binance, Coinbase, and Kraken, all of which operate within regulatory frameworks in specific jurisdictions to enhance security and trust for users. CEXs typically require users to complete identity verification processes, known as Know Your Customer (KYC) procedures, to comply with local laws and prevent fraudulent activity.