Despite their growth in terms of user numbers and trading volume, DEXs have some distance to cover before they can meet the adoption rates of CEXs. Nevertheless, it’s important to understand why they are important to the crypto ecosystem.
More security and control over your assets | But more responsibility
As we discussed previously, the Mt Gox hack in 2013 was a watershed moment in crypto because it brought to light the risk of CEXs in that you had to sacrifice custody of your crypto assets for the convenience of high liquidity and fast settlements.
Unfortunately, crypto exchange hacks aren’t a thing of the past and the years following Mt Gox have only seen countless other exchanges get hacked or compromised, causing millions of dollars of losses to CEX users.
Using a DEX is one way you can retain authority over your crypto and pay heed to the “not your keys, not your crypto” mantra.
On the other hand
Decentralised trading can be more efficient | But riskier and more complex
By removing the intermediary in the shape of the company or operator of a CEX, trading with a DEX can mean more savings or better rates or smaller spreads. This is because commissions or fees at liquidity pools on DEXs are usually lower, and in some cases even closer to zero is using the DEX native crypto to pay fees.
Also, there are no fees normally associated with depositing or withdrawing crypto from an exchange. When transacting with a DEX, you only pay the miner fee, just as you would any other crypto transaction.
However, there are significantly more steps required when trading at a DEX. You have to approve smart contracts for particular activities. For example, approving a new token swap, approving a new bridge to access a different network. DEX trading tends to be a lot less straightforward than at a CEX.
The missing gatekeeper element in a DEX also means that just any person could create a fake token to look like the legitimate one. Many a careless user has bought forgeries on DEXs. CEXs need to approve and then list a token before you can trade them, so you are generally assured of buying the legitimate token at a CEX.
Improved privacy and control over your personal data | But you need to be more careful
Another significant advantage of using a DEX is that no personal data is ever required from you (unless you use a credit card or bank to buy crypto with them).
At a CEX, unverified users don’t have very high trading limits so you’d usually have to successfully complete Know Your Customer (KYC) and Anti-Money Laundering (AML) processes before being allowed to trade there. This usually involves giving over your real name, residence, ID documents and even proof of income like salary slips and tax forms.
While it’s a perfectly valid way to remain regulated and to keep your funds safe, there’s really no way for you to know what happens with your personal data once you’ve handed it over to exchanges – asking them to destroy it would usually also require you to close your account with them.
On the other hand, there are other security risks with regards to your personal data when using a DEX. If someone were to get hold of your wallet address, for example, they would be able to look up all of your transactions quite easily on a blockchain explorer, and would even be able to track your portfolio.
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