What is a CEX?

A CEX (centralized exchange) is a cryptocurrency trading platform operated by a company that acts as an intermediary between buyers and sellers, maintaining custody of user funds, managing an order book, and facilitating trades through a centralized server infrastructure rather than directly on the blockchain.

These exchanges typically offer advantages including higher transaction speeds, greater liquidity for major trading pairs, advanced trading features like margin trading and futures contracts, fiat currency on-ramps, customer support services, and often more intuitive user interfaces designed for both beginners and professional traders.

Unlike decentralized alternatives, CEXs require users to complete identity verification (KYC) processes to comply with regulatory requirements, maintain control over users' private keys and assets in exchange-controlled wallets, and can unilaterally freeze accounts or delist assets, creating both security and censorship risks.

The centralized nature of these platforms creates single points of failure that have led to significant security incidents throughout crypto history, with exchange hacks and insolvencies resulting in billions of dollars in user losses, prompting the industry mantra "not your keys, not your coins" that emphasizes the risks of custodial arrangements.

Despite these concerns, CEXs continue to handle the majority of global cryptocurrency trading volume due to their convenience, feature set, and regulatory compliance, while evolving to address security concerns through improved practices like cold storage of assets, insurance funds, proof of reserves, and gradual integration of more transparent and decentralized elements into their operations.