A decentralized exchange (DEX) is a service using smart contracts for executing crypto transactions. Unlike centralized exchanges (CEX), DEXs do not store customer cryptocurrency and do not perform customer verification (KYC procedure).
DEXs are useful for exchanging tokens, while most DEXs exchange tokens within the same network. Not so many DEXs provide exchanges between different networks. It is worth noticing that DEXs don't allow for exchanges between fiat and crypto. If you want to buy bitcoins for dollars, you would need a centralized exchange.
To put it simply: there are centralized (CEX) and decentralized (DEX) exchanges for exchange and other operations with crypto. To work with CEXs, you need to have a service custodial wallet and to pass identity verification. You don’t need all of this for DEXs, but DEXs do not exchange crypto for fiat.
| CEX | DEX |
| Requires a CEX wallet for trading | Integrates with your wallet |
| Collects and processes clients personal data | Doesn’t collect and process clients personal data |
| Provides all kinds of trades | Doesn’t provide fiat trade |
| Can block a transaction or a client account | Can’t block a transaction or a client account |
| Operates non-transparently, can manipulate the market | Operates transparently using smart contracts |
| Requires skills to work with | Easy to use |
| Offers different complicated trading tools: margin trading, different types of orders, order books. Some CEXs offer crypto deposits | Don’t have complicated trading tools. Provides staking and farming |
| Completes transactions very quickly within the exchange system | Transactions are made in blockchain, which slows down trading: you have to wait for transaction confirmation. Doesn’t support high-frequency trading |
| Provides support service and arbitration to help in disputable situations | Doesn’t provide support service and arbitration. You are responsible for your transactions |