EPISODE 90 — What Is a DEX vs a CEX? Two Ways to Trade Crypto

In November 2022, FTX was the second-largest crypto exchange in the world. Its CEO appeared on magazine covers, testified before regulators, and was celebrated as a visionary. Within a week of the first news reports about the exchange's financial situation, it had filed for bankruptcy and over eight billion dollars in customer funds had effectively disappeared. The lesson that millions of traders learned is the same lesson that decentralised exchanges were originally built to make unnecessary: when you use a centralised exchange, you are trusting that exchange with your money. And that trust can be catastrophically misplaced.

In this episode of Crypto for Beginners, we explain the complete difference between centralised exchanges — CEXs — and decentralised exchanges — DEXs — and give you a clear framework for knowing which to use in which situation. We cover how CEXs like Coinbase, Binance, Kraken, and Bybit work: their order books that match buyers and sellers, the custody model where the exchange holds your assets, the regulatory requirements they must meet, and the fee structures that vary significantly between platforms.

We then explain how DEXs like Uniswap, Curve, Jupiter, and Velodrome work: automated market makers that use liquidity pools rather than order books to determine prices, the self-custody model where you trade directly from your own wallet without any intermediary ever holding your assets, and how token prices are determined algorithmically by the ratio of assets in each pool. We cover the practical trade-offs honestly: CEXs offer better liquidity for large trades, simpler fiat on-ramps, and more user-friendly interfaces. DEXs offer self-custody, access to long-tail tokens not listed on centralised platforms, censorship resistance, and no counterparty risk from the exchange itself. We give you specific guidance on which approach is right for different situations and different amounts.

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