In recent months, DEXs have become increasingly popular as centralized exchanges have experienced significant pressure from regulators across the board. This has taken place in many countries, with some countries such as China, completely banning the use of Cryptocurrencies. Despite the fact that many exchanges are now requiring KYC (know your client) information in order to access their services, many first-time users still make a CEX (centralized exchange) their first experience.
For the most part, this is not that strange as this is protocol for any bank account, or similar financial product. It is the Crypto veteran who is largely apposed to KYC and other measures. Crypto users who have been in the space for many years once enjoyed complete freedom to interact financially without any restrictions. New users have never actually experienced this level of freedom and therefore are generally unfazed by KYC.
WHO ARE THE CEX LEADERS
Despite Binance recently coming under tremendous regulatory scrutiny, the company has chosen to comply and meet certain regulations. Binance still holds the crown in terms of volume and user sentiment. When it comes to altcoins, speculators eagerly anticipate a Binance listing. This is the aim of any new project, while simultaneously the desire of every holder.
Huobi has also played a significant role alongside Binance. FTX is another top rated exchange that also offers futures trading, along with many other leveraged tokens. The exchange also offers tokenized shares for blue chip companies such as Apple, Tesla and Facebook. Most spot exchanges are now also offering futures trading, which was previously an avenue predominantly monopolized by Bitmex and Bybit.
RISKS ASSOCIATED WITH DEXS
Centralized exchanges have been known to suffer hacks from time to time. This will most likely always be a concern. Some exchanges choose to hold the majority of funds offline in cold storage, while maintaining adequate balances in hot wallets. These balances are sufficient for daily trading volumes, which means that exchanges are able to protect assets that are not being utilized in daily trade. The risk is always present, which further serves to validate the decision of moving funds into your own wallet.
Ideally, you would want to make use of a hardware wallet such as a Ledger or SafePal Wallet S1. However, there are other less costly options that are relatively safe. Maximum safety and security does however lie with a hardware wallet. It would be advisable to do some research before making a wallet based decision.
KEEP YOUR CEX USAGE TO A MINIMAL
Though many of these exchanges currently offer really great services, it remains prudent to maintain custody of your assets. I generally make use of a CEX to buy, sell or trade assets, after which time I aim to regain custody as speedily as possible. Holding an exchange token to earn dividends or rewards will usually require holders to stake them on the actual exchange. This is where each user has to weigh up the risk.
Despite DEXs stealing much of the limelight in 2020 and 2021, there still remains a significant amount of volume on CEXs.
Regardless of how favorably you may view a particular exchange, you still need to perform your own due diligence and conduct your own research. Make sure you are happy with their terms of service. This can include withdrawal fees, deposit limits and other terms that might be restrictive to your needs. You don’t want to deposit your funds, only to later realize that you now have an issue.
It is also very important to be extremely vigilant when it comes to smaller, less known exchanges. If for whatever reason you need to make use of such an exchange, ensure that you have exhausted your research, as many of these smaller exchanges can be a bit shady.
Choose wisely and try to stick with the industry leaders where possible! I have personally found this to be the best and safest approach.