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Centralized vs. Decentralized Crypto Exchanges: A Builder’s Perspective
- Launching a crypto exchange involves complex undertakings in the blockchain space, with practical differences between centralized and decentralized models.
- Centralized exchanges require building extensive technical infrastructure and handling user funds directly, offering tight control over UX and performance.
- Decentralized exchanges execute trades on-chain through smart contracts, reducing liability but demanding solid contract engineering and blockchain limitations.
- Legal compliance for centralized exchanges involves obtaining multiple licenses, while decentralized exchanges may avoid certain regulations by not holding funds or integrating fiat.
- Centralized exchanges pose security risks due to custody of user funds, while decentralized exchanges shift responsibility to users and rely on AMMs or on-chain order books for liquidity.
- CEXs cater to institutional clients and prioritize user support, while DEXs target DeFi users and emphasize global accessibility and censorship resistance.
- CEXs operate as startups-as-banks, requiring licenses and capital, while DEXs function as startups-as-protocols, focusing on tokenomics and community building.
- Choosing between CEX and DEX depends on risk appetite and long-term vision, with both routes offering profitability and global scalability but through different approaches.
- Ultimately, the decision rests on whether you want to build a bank-like infrastructure with CEX or a protocol enabling permissionless trade with DEX, aligning with your mission and risk tolerance.
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