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Home Blog Maximize yield on your crypto Centralized or Decentralized Exchanges
Article by Yunis
16 May 2022 (Updated 28 September 2022)

Maximize yield on your crypto! Centralized or Decentralized Exchanges?

Traditional banks offering low APY is unacceptable in an 8.3% inflation rate. US economy is facing a historical high inflation rate along with European countries. Maximizing yield on your assets is a vital question in such an environment.
Maximize yield on your crypto on a Centralized or Decentralized Exchanges?  logo
  • Decentralized Exchanges don't require your private keys
  • DEXes offer Liquidity pools and Yield Farmings
  • Legal rights on a Centralized Exchange
  • Trade on a CEX, Hodl on a DEX

Maximize yield on your crypto on a Centralized or Decentralized Exchanges?

Traditional banks offering low APY is unacceptable in an 8.3% inflation rate environment. US economy is facing a historical high inflation rate along with European countries. The global economy started to slow down with the pandemic. We heaved a sigh of relief with the news saying that vaccines are available and the pandemic is ending. But, the conflict in Ukraine became the cherry on the top. Commodity prices are going up. Maximizing yield on your assets is a vital question in such an environment.

Cryptocurrency investors were able to make great returns in such a turbulent environment. Bitcoin at the top and other cryptos helped individuals protect their savings against high inflation and are still helping. Besides hodling cryptocurrencies for a long term, hodlers can enjoy generous rewards and yields on cryptocurrencies.

You decided to own some Bitcoin or different cryptocurrencies, and you want to hodl it. There are various ways to earn interest on your idle crypto assets. You can use a centralized or decentralized exchange platform to keep your crypto assets in a savings account. First of all, read our article to learn more about their differences.

Differences between Centralized or Decentralized Exchanges?

Of course, centralization is the biggest difference between them. Thanks to smart contract compatible blockchains, we can create decentralized apps. Ethereum is the leading smart contract blockchain and hosts hundreds of thousands of apps. The most popular Decentralized Exchanges (DEXes) are 1inch, dYdX, AnySwap, Balancer, Dodo, Curve, and PancakeSwap, and they are built on the Ethereum blockchain.

When you open a webpage on your computer or an app on your smartphone, it is hosted by a server from a specific location. Servers provide the needed computing power for the hosted application or webpage. But decentralized apps are hosted by distributed servers from different locations in the world. So when you are using an app built on a blockchain, you never know which computer is hosting the app at that moment.

DEXes allow users to trade crypto assets non-custodial and don't require ID verification or KYC. DEXes use Automated Market Maker (AMM) system to meet supply and demand in the digital marketplace. AMM system allows DEXes to charge users less fee for trades.

Centralized exchanges (CEXes) are legal entities registered with local regulations and operated as for-profit companies. The company is responsible for the security of the assets and the performance of the exchange services. CEXes are legal entities and require users to pass an id check or KYC. Binance, Coinbase, Kraken, and KuCoin.

While CEXes usually offer standard saving products with fixed rates, DEXes have various investment products such as liquidity pools and yield farmings.Besides simply staking your coins, you can provide liquidity to the pools and generate income.

Regulations

Since the CEXes are legal entities, they must comply with local regulations where they provide services. Many countries require different licences and permits for CEXes to operate because they are accepted as a financial institutions.

DEXes are independent of a physical location, making them very hard to regulate. Most of the popular DEXes are governed by a community called Decentralized autonomous organization (DAO). The DEXes' utility token holders are the governing participants. Users vote on important decisions in the platform's governance.

Speed

CEXes are far faster and more efficient than DEXes, of course. First of all, transactions on CEXes are off-chain, and not all transactions made on a CEX are recorded on a blockchain. Secondly, CEXes don't use AMM, and they use their own assets. CEXes have a better user interface, and traders tend to use a CEX over a DEX. Transactions on a DEX are made on a blockchain, and just a single transaction may take minutes or longer, depending on the congestion.

Security

DEXes are relatively new, and they are not regulated. There are not many DEXes that have been performing long enough to prove that it works securely. We still witness hacking issues on DEXes because of their short history. There are better-proven DEXes, operating for at least 4-5 years. Make sure you are using a DEX with a proven history.

CEXes are safe with their custodial. If there is a hacking issue, there will be a legal entity to answer and pay for your loss. You can sue and hold a claim against the company. Most CEXes have their customer's assets in cold storage.

A DEX doesn't require your private keys. You have complete control over your assets because you will keep your assets in your wallet while you have no control over your assets on a CEX.

Advantages of Centralised vs Decentralised Exchanges

Advantages of Centralised Exchanges (CEX)

  • Higher liquidity
  • Better user interface
  • Faster speed
  • Fiat currencies accepted

Advantages of Decentralised Exchanges (DEX)

  • You have complete controll over your assets.
  • Your keys, your coins.
  • No KYC or ID pass required
  • Fast growing platforms
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