What is CEX? A Comprehensive Explanation of the Mechanism and Current Status of Centralized Exchanges

Question

Most cryptocurrency trading platforms that traders use on a daily basis take the form of CEX (Centralized Exchange). So, what kind of mechanism is CEX based on?

Basic Structure of CEX: Who Manages the Assets?

Similar to traditional financial markets, CEX is a trading environment overseen by a centrally managed intermediary. When users conduct transactions, their cryptoassets and private keys are centrally stored and managed by the exchange.

Specifically, the platform is responsible for the following functions:

Storage of users' assets and private keys
Record and settlement processing of all trading transactions
Management of account information and balances
Operation and maintenance of the entire platform

Reasons to Choose a CEX: Benefits for Traders

The reason why CEX is the most widely used in the market is that there are many practical advantages.

Usability and accessibility are outstanding above all else. An intuitive interface is provided, allowing even beginners to operate without complex technical knowledge and start trading.

A major strength is also the point of having abundant liquidity. Because many traders are concentrated, buying and selling can be smoothly executed, minimizing slippage.

Furthermore, direct trading of fiat currency and cryptoassets is possible. Since digital assets can be purchased directly via bank transfer or credit card, the barriers to entry are low.

The advanced trading features are also well-equipped, allowing you to choose from multiple trading methods such as futures trading and margin trading.

The customer support system is also well-established, providing peace of mind that direct support can be received in case of any issues.

Challenges and Risks of CEX: Risks Brought by Centralization

On the other hand, there are also disadvantages due to the centralized management structure.

Security risks are the biggest concern. Because a vast amount of user assets are concentrated in one place, it is more susceptible to cyberattacks, and if a system failure occurs, it will affect the entire platform.

Regulatory compliance is strict, and the identification procedures are complex. Many CEXs must comply with the legal requirements of their jurisdiction, and procedures such as KYC (Know Your Customer) and source of funds verification are mandatory during registration.

Platform-dependent issues cannot be ignored either. If the exchange goes down or is subjected to regulatory action, users may lose access to their assets.

What is CEX after all?

A CEX is a cryptocurrency trading platform based on a traditional financial model that emphasizes convenience and liquidity. It is used by a wide range of users from beginners to experienced traders, but it also inherently carries centralized risks.

It is important for users to choose a platform based on their trading style and priorities, understanding the advantages and challenges.