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Detailed Comparison Between CEX, DEX, and Swap

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04 Jun 2024

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The core capabilities of blockchain solutions, including their decentralized nature and the ability to record immutable transactions in peer-to-peer networks, are testaments to the technology’s ability to transform the existing trading and exchange structure. Therefore, enterprise blockchain solutions are experiencing higher demand every day.   

It is the introduction of the latest technologies, advanced computer programs, and high-speed internet that is paving the way to improvements in the traditional trading systems. However, it was the introduction of blockchain solutions that truly motivated investors to fund new advancements.  

One of the major changes that blockchain technology has introduced is decentralization and that makes it possible to execute trade without the need of a centralized entity. It took longer and was overall more cumbersome. Hence, companies are now migrating to enterprise blockchain solutions that created distributed authority while avoiding any manipulation of records and fraudulent activities.  

In this post, we will be covering three different types of exchange, that are centralized exchanges, DEXs, and Swap.  

 

The Three Exchanges and How They Work?

With the focus on three types of exchanges and their comparison, let us take some time to define each exchange to ensure that everyone is on the same page. 

 

1. Centralized Exchange (CEX) 

In the case of centralized exchange, the name says it all. Centralized exchanges occur through a central authority, and it is where digital and tangible assets are traded.  

Here, centralized authority is the middlemen between buyer and sellers, who earn through transaction fees and commissions. These entities have their own rules and regulations, but ultimately exist to serve the users and give them access to prevalent assets. 

Trading volume has a huge role to play in centralized exchange as it lowers volatility and mitigates the risk of market manipulation. The technology has allowed companies to launch exchanges where users can trade, invest, and earn returns while enjoying decent liquidity.  

However, the introduction of blockchain technology and every blockchain development company offering relevant services have made the concept of decentralization in trading more feasible, and that has resulted in a clear shift in preference of the users, who are opting for the decentralized trading options instead of centralized trading. 

 

The Workings of Centralized Exchange 

Centralized exchanges are governed by central authorities. Hence traders need to put in a lot of trust in these authorities to perform their trades.   

The concept is close to how stock trading works. Centralized exchange facilitates the process of buying, selling, and exchanging digital assets. Registration is involved to ensure fair trading, and it is only after ID proof, name, address, and biometric verification that the user gets their account details and starts trading. 

Here, the central authority is the middleman that takes funds from the user and then sends it to the seller, in exchange for equivalent amount of IOUs that are added to the trader’s account.  

 

Examples of Centralized Exchanges:  

  • Binance 
  • FTX 
  • Kraken 
  • Coinbase Exchange 

 

2. Decentralized Exchange (DEXs) 

Decentralized exchange is created on blockchain, and the platform works without any intermediators. They have all the relevant features of centralized exchange with the bonus of facilitating trades of all virtual coins. Therefore, it comes as no surprise that DEX is responsible for 3% of total crypto trading volume. It ensures that users do not have to worry about the limited coin listing in DEXs. 

While centralized exchanges rely on their parties to manage security and funds, much like banks and stock exchange, DEXs utilize self-executing smart contracts for the job. Therefore, several businesses are hiring blockchain services companies to create DEX platforms today. 

 

The Working of Decentralized Exchange 

Decentralized exchanges have seen a range of evolutions, going through multiple iterations to come where it is now. Firstly, they used order books, much like centralized exchanges and stock markets. Now, they use Automated Market Maker. We will be discussing both methods here. 

 

Order Book Method 

The order book keeps track of the open orders and manages buying and selling products. People who want to buy the product need to provide a smart contract with the asset’s estimated cost. Then, the smart contract will find a seller who matches the buyer’s request and swap assets. 

In the case of sellers, smart contracts require the submission of the asset to find a suitable buyer for it. Once found, it can compete with the exchange process. 

Broadly, order books are divided into two types: 

 

On-chain order book:  

On-chain order-based decentralized exchange relies on nodes to manage open orders. Here, miners are integral to the process as they are responsible for validating transactions. 

 

Off-chain order book: 

Off-chain order-based decentralized exchange relies on central authority to manage transactions’ records. However, the transaction occurs on decentralized peer-to-peer network. So, it is a semi-decentralized system. 

 

Automated Market Marker Method (AMM)  

The automated Market Maker Method addresses the liquidity challenge by allowing traders to trade without a third party agreeing to the transaction terms. Instead, the system automatically executes trades based on certain parameters through a pool of funds. 

 

Example of Decentralized Exchanges:

  • Tomo DEX 
  • Nash Exchange 
  • Binance DEX 
  • ViteX 

 

3. Swap 

Swap allows users to exchange two non-native tokens between two unique blockchain protocols without relying on a traditional crypto-to-fiat exchange or token migration.   

Swap technology allows for quick exchanges, facilitating an easy shift to stablecoin from volatile assets and hedging against risks.  

Swap trading method by Blockchain solutions company are the most popular among traders due to the various benefits its offers. 

 

The Working of Swap 

Swap allows for seamless crypto-to-crypto exchange, without the need for any intermediates. The users can skip the step of converting native currencies to fiat to buy the desired crypto, reducing the overall time taken for the process. 

Exchanging native token with a non-native token is possible with official crypto wallet. All the user needs to do is enter details of total amount for exchange and the desired trading pair to perform the swaps. 

It is the faster, simpler, and more affordable and secure method of exchanging digital assets on the blockchain. 

 

Examples of Swap-Enabled Exchanges 

  • Simple Swap 
  • Change Now 
  • Shapeshift 
  • Changelly 

 

Comparison of Centralized Exchange, Dex, and Swap 

Here is a detailed comparison between centralized exchange, decentralized exchange, and Swap. 

Cex Vs Dex Vs Swap

 

Enterprise Blockchain Solutions: Choose What You Want to Create CEX, DEX, or Swap  

Now that you understand the difference between the three different platforms, choosing the one to create will be easier. You can always leverage enterprise blockchain solutions to assist you in your journey to find the relevant path based on your needs. Blockchain consulting includes creating a complete plan and checking its viability before you make the final call. Whether you prioritize security, convenience, or cost-effectiveness, there is a trading solution that aligns with your preferences.  

Ready to start the journey? Partner with us, an enterprise blockchain consulting company, and make this a success. 

Exchange vs. DEX: Exchange is much like a traditional stock exchange, where a central authority manages the platform and your funds. At the same time, DEX platforms facilitate peer-to-peer trading, powered by blockchain and smart contracts, where you retain control of your crypto.

Swap vs. Exchange: Swap is a specific type of exchange that focuses on quick, automated trades between specific pairs of assets. On the other hand, a centralized exchange is a broader platform for buying, selling, and trading various cryptocurrencies through which a centralized authority keeps the ledger.

Some examples of current centralized exchange platforms are Binance, Coinbase Exchange, FTX, and Kraken. Tomo DEX, Nash Exchange, Binance DEX, and ViteX are some examples of DEX platforms.

Different Types of DEX: Order Book Method – On-chain and off-chain order books where much like traditional exchanges, sellers are matched with buyers. Automated Market Maker (AMM) - These use liquidity pools and algorithms to facilitate trade.
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Anil Rana

04 Jun 2024

Anil Rana, a self-proclaimed tech evangelist, thrives on untangling IT complexities. This analytical mastermind brings a wealth of knowledge across various tech domains, constantly seeking new advancements to stay at the forefront. Anil doesn't just identify problems; he leverages his logic and deep understanding to craft effective solutions, actively contributing valuable insights to the MoogleLabs community.

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