In the context of cryptocurrency, CEX stands for Centralized Exchange. These are trading platforms that operate similarly to traditional brokerage or stock market exchanges. Centralized exchanges are run by profit-oriented companies that derive income from fees associated with trading, withdrawals, and other services.
CEXs serve as intermediaries connecting buyers and sellers of cryptocurrencies. Some well-known examples include Binance, Coinbase, and Kraken. These platforms require users to deposit funds into a centralized wallet, and then trades are facilitated by the exchange on behalf of the user.
Key features of CEXs:
- Ease of Use: Centralized exchanges are typically user-friendly and cater to beginners as well as experienced traders.
- Liquidity: Because of the high volume of trades, these exchanges tend to have high liquidity, making it easy to execute trades of any size.
- Fiat to Crypto Transactions: Centralized exchanges often allow users to trade between fiat currencies (like USD, EUR, etc.) and cryptocurrencies.
- Security: Although the security level of CEXs is often debated, these exchanges do tend to invest in security measures to protect user funds. However, they also pose a risk as they are a prime target for hackers.
- Regulation: Most CEXs are regulated and thus require users to complete a Know Your Customer (KYC) process, which involves the verification of user identities.
Contrary to CEXs are DEXs or Decentralized Exchanges, which operate without an intermediary institution. DEXs allow peer-to-peer trades to be made with the help of smart contracts and automated processes.