At the present stage of development of the cryptocurrency market, centralized cryptocurrency exchanges play a key role. Among their strengths are a large selection of assets, a familiar interface, high liquidity, security of transactions and the ability to store coins on a wallet built into the account. On centralized platforms, you can easily exchange BTC to XMR or convert crypto to fiat. CEXs serve as a bridge between traditional and digital finance.
But still, CEXs are often criticized for violating the basic principles of the functioning of cryptocurrencies – decentralization and anonymity. In particular, centralized management makes it possible to block access to assets for individual users.
Decentralized alternative
Decentralized exchanges (DEXs) are inherently more in line with the blockchain philosophy. On such sites, users can trade without disclosing personal information. the ability to access trading is implemented differently: instead of registering an account, the user connects his wallet to the platform. In addition, the system works fully automatically based on smart contracts, assets are not transferred for storage to third parties – that is, there is practically no risk of hacking.
The main disadvantage of DEX is limited functionality. And this is just one of the reasons why users prefer to work with CEX.
Are DEXs ready to lead the market?
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The segment of decentralized crypto exchanges can potentially become an alternative to centralized platforms, but so far it is at a very early stage of development. Pending orders are not yet supported on the DEX and this makes trading very difficult. Transactions must be executed manually, it is still technically impossible to sell or buy an asset at the desired price in automatic mode.
The functionality of the DEX is also severely limited. Most often, we are talking only about exchange operations with tokens of the same standard. Cross-chain transactions are currently available on single platforms. More importantly, decentralized platforms do not support fiat-crypto transactions, and this issue will remain relevant indefinitely.
Of great importance in choosing a platform is the trust of users. A mistake on the DEX will be very expensive, it is not even theoretically possible to return the funds. People really prefer a more predictable regulated market.
Legal aspects of cooperation with DEX
It is already possible to buy quite tangible goods and real services for cryptocurrencies. But one way or another, the release of digital currency into the real world, whether it is buying a plane ticket or converting it into fiat currency, will inevitably be associated with the need to legalize income. There are no mechanisms yet to confirm the legitimacy of the origin of user funds received through the DEX. For this reason, institutional investors and large businesses prefer to work with CEX, where regulatory risks are significantly lower.
Complete freedom of action on the DEX at first glance looks attractive. But at the same time, no user is immune from the risk of buying a “dirty” coin, for example, stolen. The legal and financial consequences of such a transaction will be extremely unpleasant for the owner of the coin.
It should be noted that international regulators are moving away from a formal understanding of law. At the end of 2021, a fundamentally new legal approach was formed. According to this approach, the implementation of AML requirements can ultimately be entrusted not only to exchanges, but also to other members of the crypto community with influence on DeFi mechanisms, in particular, developers.
Bottom line
The young DEX segment is developing quite quickly and there is a demand for the services of such platforms in the crypto community. However, it is worth recognizing that centralized exchanges adapt faster and more flexibly to innovation. In conformity with LetsExchange, most likely, the displacement of one of the segments will not happen in the near future, and healthy competition will benefit the market as a whole.
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