Cryptocurrency exchanges are the main places where people buy and sell digital currencies. They are the mass market platforms for buying, selling, and trading cryptocurrencies. There are two main models—Centralized Exchanges (CEXs) and Decentralized Exchanges (DEXs). Each doing things differently in terms of how users' funds are handled and how trades are facilitated.
Though they serve the same purpose, their mechanisms are actually different. Information regarding these differences is necessary to move around the world of blockchain in a secure and efficient way. This article talks about the fundamental concepts of CEXs and DEXs, their pros and cons, and how their functioning is traceable on a Routescan.
What is a Centralized Exchange (CEX)
A Centralized Exchange (CEX) is a single business-operated platform that acts as a dependable third party for users. Just like a regular bank or stock exchange, a CEX manages user assets, holds and protects funds, and operates an internal order book to match buyers and sellers.
When you make a trade on a CEX, you invest your funds in an exchange-managed wallet. Your trade is processed on the company's internal book. User experience and trade velocity are highly optimized in this setup.
Key Characteristics of a CEX
Custodial. The user private keys and funds are in the possession of the exchange, with the exchange serving as their representative.
Permissioned. Users must register an account and typically complete Know Your Customer (KYC) identity checks.
High Liquidity & Speed. CEXs tend to draw huge trading volumes, making for quick transactions with little price impact (slippage).
Customer Support. CEXs offer professional teams to support users with account problems and inquiries.
Fiat Gateways. These exchanges provide friendly ways to interact with the crypto world, letting you buy digital currencies with your everyday money (like USD or EUR) and switch back whenever you need to.
Security Risk. As they hold enormous amounts of user assets, they are a tempting target for hackers. The failure of the exchange can lead to complete loss of user assets.
What is a Decentralized Exchange (DEX)
A Decentralized Exchange (DEX) is a peer-to-peer marketplace built directly on top of a blockchain. Instead of a central actor, DEXs use smart contracts—programmatic pieces of code that run automatically—to facilitate trades directly between user wallets.
When you use a DEX, you never really transfer control of your funds. You connect your own wallet (like MetaMask or Core) to the platform, and you settle transactions on the public ledger blockchain immediately.
DEXs operate on a range of models. The most common are Automated Market Makers (AMMs), which use algorithms and pools of assets to make trades happen, and Order Book DEXs, which more closely resemble traditional stock exchanges with lists of buy and sell orders. There are also DEX Aggregators, which search across multiple DEXs to find the best available price of trade for customers.
Key Characteristics of a DEX
Non-Custodial. You're always in control of your own personal keys and funds.
Permissionless. Anybody with a crypto wallet can trade without registering or providing personal information.
Onchain Transparency. Transactions are publicly recorded and can be verified on the blockchain.
Smart Contract Risk. The security of a DEX relies on the integrity of its smart contract code. Bugs or exploits within the code might lead to users losing their money when they are utilizing it.
Liquidity Provision & Fee Generation. Most DEXs have an option for any user to become a liquidity provider by depositing assets in a trading pool. As incentives for providing liquidity, they are rewarded with a share of trading fees earned by such a pool.
Impermanent Loss. A unique risk for liquidity providers to DEXs, where the value of their deposited assets can decrease compared to simply holding them.
CEX and DEX Activity on Routescan
A block explorer is an essential tool for monitoring the verifiable, onchain world of DEXs and the CEX-related activity that communicates with the blockchain.
Tracking DEXs on Routescan
Since every DEX swap is a transaction, it is entirely open on Routescan. Our platform has a dedicated Dex Tracker where users can gain insights into onchain trading. You can:
Monitor Trading Pairs. See the price, liquidity, and volume of token pairs across various DEXs.
Monitor Transactions. See a live feed of all swaps, helping you analyze trading volume and monitor market patterns.
Verify a Trade. Just enter a transaction hash and you can see the exact tokens traded, amounts, DEX protocol used, and wallets utilized.
Identifying CEX Activity on Routescan
While CEX transactions take place on a private, off-blockchain ledger, deposits into and withdrawals from a CEX are public, on-blockchain transactions. Routescan's forensic analysts work around the clock to discover, verify, and label the huge network of addresses associated with major CEXs. This goes far beyond simple hot and cold wallets to include labels for "Fees," "Deposit Funders," "Vaults," "Distributors," and even addresses related to security events. This deep labeling and contextual information helps users in several ways:
Look for Informational Banners. Check for banners that are displayed at the top of token and transaction pages. Our team curates these to present vital, timely information. This might consist of security notices regarding possible scams or malicious tokens, notices against CEX impersonations, or other helpful, even non-security-related context on an asset or address.
Check for Token and Contract Legitimacy. Scam contracts attempt to present themselves as large exchanges. Routescan helps you determine legitimate parties by providing clean, recognizable names to known tokens and addresses. For example, you can double-check that you are interacting with the correct token by looking up its proper name and ticker—such as
MEXC: MXorKuCoin: KCS. This prevents sending money to an malicious impersonator.Confirm Your Transfers. When you're making a crypto transfer to a CEX, you can use Routescan to confirm whether your deposit transaction has been received by the intended wallet address of the exchange.
Centralized (CEX) and Decentralized (DEX) exchanges are equally vital to crypto trading but function in extremely different ways. A CEX is a platform run by a corporation or company that offers simplicity, while a DEX is a community of smart contracts that offers the utmost control over funds to users.
Understanding this distinction is the key to deciphering onchain data. With this knowledge, you can use Routescan to follow a DEX trade with confidence as it happens or verify that your funds have arrived securely in a CEX wallet.