CEX (Centralized Exchange)
A cryptocurrency exchange operated by a centralized company that acts as an intermediary between buyers and sellers. CEXs hold custody of user funds, maintain off-chain order books, and typically require identity verification (KYC). They offer high liquidity and ease of use but introduce counterparty risk.
“Coinbase, Binance, and Kraken are centralized exchanges where users create accounts, deposit funds, and trade through the platform's order book.”
DEX (Decentralized Exchange)
A cryptocurrency exchange that operates without a central authority, using smart contracts to enable peer-to-peer trading directly from users' wallets. DEXs never take custody of user funds. Most DEXs use automated market maker (AMM) models with liquidity pools, though some use on-chain order books.
Exchange
A platform where users can buy, sell, and trade cryptocurrencies. Centralized exchanges (CEX) are operated by companies that custody user funds and match orders, while decentralized exchanges (DEX) operate via smart contracts, allowing users to trade directly from their wallets.
KYC (Know Your Customer)
Identity verification procedures required by financial regulations where platforms collect and verify users' personal information such as government-issued ID, address, and source of funds. Most centralized crypto exchanges require KYC, while DeFi protocols generally do not. KYC is part of broader Anti-Money Laundering (AML) compliance.
Order Book
A real-time list of all open buy orders (bids) and sell orders (asks) for a trading pair on an exchange, organized by price level. The order book shows market depth and the spread between the highest bid and lowest ask. Centralized exchanges and some DEXs use order books to match buyers with sellers.