CEX vs. DEX
Centralized vs decentralized exchanges: order books, custody, and tradeoffs.
Centralized Exchanges (CEX)
CEXs are run by companies. You deposit your assets, they hold them, and they match trades through an order book. Think Binance, Coinbase, or the late FTX.
Key Characteristics of CEXs
- Custody: The exchange holds your assets
- Order Book: Matches bids and asks
- KYC/AML: ID verification required
- Centralized Control: A company runs the show
- Market Making: Professional MMs provide liquidity
CEX Order Books
An order book lists all open buy (bid) and sell (ask) orders, organized by price level.
CEX order book example - OKX
CEX order books are noisy. Market makers constantly place and cancel orders -- an order can appear and vanish in milliseconds. That makes it hard to trust what you see as real support or resistance.
Decentralized Exchanges (DEX)
DEXs run on-chain. No company in the middle -- you trade directly through smart contracts. On Solana: Raydium, Orca, Meteora.
Key Characteristics of DEXs
- Self-Custody: Your wallet, your keys, your assets
- AMM Model: Liquidity pools instead of order books
- Permissionless: No signup, no KYC for basic swaps
- Decentralized Control: Smart contracts and DAOs, not companies
- On-Chain: Every transaction is publicly verifiable
DEX Liquidity Pools
Most DEXs use liquidity pools -- assets pre-deposited into smart contracts, with prices set algorithmically.
DEX trading interface example - Raydium Swap
DEX liquidity tends to be more stable and predictable than CEX order books because:
- Liquidity is provided through actual token deposits, requiring commitment
- Concentrated liquidity positions remain in place until manually adjusted
- Limit orders are stored on-chain and cost gas to place or cancel
- There's no high-frequency order spoofing as seen in CEX markets
Detailed Comparison
| Feature | Centralized Exchange (CEX) | Decentralized Exchange (DEX) |
|---|---|---|
| Asset Custody | Exchange holds your assets (custodial) | You control your assets via wallet (non-custodial) |
| Trading Mechanism | Order book matching buyers and sellers | Liquidity pools with algorithmic pricing |
| Privacy | KYC required, trading history private | No KYC, but transactions visible on-chain |
| Speed | Very fast (milliseconds) | Dependent on blockchain (seconds on Solana) |
| Costs | Trading fees (typically 0.1-0.5%) | Trading fees plus network gas fees |
| Security Risks | Exchange hacks, account freezing | Smart contract vulnerabilities, user errors |
| Order Types | Full suite (limit, market, stop, OCO, etc.) | Limited but growing (spot, limit, some advanced) |
| Liquidity | High, generally concentrated tightly around the market price, but volatile | Lower, but more stable and predictable |
| Support/Resistance | Less reliable due to order spoofing | More reliable due to actual token deposits |
Why DEX Order Analysis Matters
CEX and DEX liquidity behave very differently, and that matters for how you trade:
CEX Order Book Limitations
- Orders can appear and disappear within milliseconds
- Market makers use algorithms to spoof orders
- Large visible orders may vanish when approached
- Support/resistance levels frequently mislead traders
- Requires constant monitoring -- the picture changes by the second
DEX Liquidity Advantages
- Liquidity represents actual deposited assets
- Concentrated positions form genuine support/resistance
- On-chain, so you can verify everything yourself
- Stable over time -- LPs don't pull positions in milliseconds
- Creates predictable behavior at key price levels
CLOBr focuses on DEX liquidity because it's backed by real deposits, not fleeting orders.
Hybrid Approaches
The line between CEX and DEX is blurring. Some newer platforms mix elements of both:
Emerging Hybrid Models
- On-Chain Order Books: Phoenix and OpenBook on Solana implement on-chain central limit order books (CLOBs)
- Semi-Custodial Models: Some platforms offer custodial services with on-chain settlement
- Aggregators: Services like Jupiter combine liquidity from multiple DEXs for better execution
- RFQ Systems: Request-for-quote systems connecting institutional liquidity to DeFi (e.g. Wintermute)
Next: the specific DEX platforms CLOBr integrates with on Solana.