What is CEX
Centralized exchange normally refers to a custodial assets trading platform that is owned, operated, and self-managed by centralized entities like a private company. Users need to deposit their assets on the platform to start trading.
In traditional finance, stock exchanges such as NYSE and Nasdaq are considered centralized exchanges. Exchanges like Binance or Kraken are centralized exchanges in the crypto industry, which operate similarly to Nasdaq, using a central order book model to match trades and determine asset prices. They also adopt a central-order book to determine the price of an asset.
Above is a screenshot of the order book of $BTC/$BUSD pair on Binance, the largest centralized crypto exchange in the world. The green figures below are the bid (buy orders) placed by potential buyers of $BTC, whereas the red ones above are prices that sellers of $BTC request.
Whenever a buy order and a sell order are matched, a transaction is done, and the agreed price is considered the latest price until another trade is executed.
Although centralized exchanges carry a lot of liquidity, the fact that users do not hold custody over their assets carries risk when the exchange gets hacked like what happened to Mt.Gox in 2014, or bankrupted like what happened to FTX in 2022.
- Nowadays typical crypto centralized exchanges: Binance, Coinbase, OKX, Kraken, Bybit, KuCoin, etc.
- Typical traditional centralized stock exchanges: New York Stock Exchange, Nasdaq, etc.
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