Centralized Exchange (CEX)
A cryptocurrency exchange operated by a company that holds user funds in custody and matches buy/sell orders via a central order book.
Major CEXs include Binance, Coinbase, Kraken, and OKX. They generate revenue through trading fees (0.1%–0.5% per trade), spread, listing fees, and margin/futures products.
CEX vs DEX:
- CEX: High liquidity, fiat support, fast UX, but custodial risk.
- DEX: Non-custodial (users keep keys), but lower liquidity and no fiat.
The phrase 'Not your keys, not your coins' summarizes the core risk of using a CEX.
graph LR
Center["Centralized Exchange (CEX)"]:::main
Rel_cex["cex"]:::related -.-> Center
click Rel_cex "/terms/cex"
Rel_proof_of_stake["proof-of-stake"]:::related -.-> Center
click Rel_proof_of_stake "/terms/proof-of-stake"
Rel_singularitynet["singularitynet"]:::related -.-> Center
click Rel_singularitynet "/terms/singularitynet"
classDef main fill:#7c3aed,stroke:#8b5cf6,stroke-width:2px,color:white,font-weight:bold,rx:5,ry:5;
classDef pre fill:#0f172a,stroke:#3b82f6,color:#94a3b8,rx:5,ry:5;
classDef child fill:#0f172a,stroke:#10b981,color:#94a3b8,rx:5,ry:5;
classDef related fill:#0f172a,stroke:#8b5cf6,stroke-dasharray: 5 5,color:#94a3b8,rx:5,ry:5;
linkStyle default stroke:#4b5563,stroke-width:2px;
🧠 Knowledge Check
🧒 Explain Like I'm 5
A [CEX](/en/terms/cex) is like a bank and a stock market combined, but for crypto. You deposit your [Bitcoin](/en/terms/bitcoin) with them (they hold it for you, like a bank vault). Then you can buy and sell crypto using their [trading](/en/terms/trading) platform. The problem is: if the bank goes bankrupt or gets robbed, your money might be gone — which is exactly what happened to FTX in 2022.
🤓 Expert Deep Dive
Order Book Mechanics
CEXs use a central limit order book (CLOB) where market makers post bids and asks, and takers execute against them. Makers add liquidity and pay lower fees; takers remove liquidity and pay higher fees.
Custodial Risk
Users of a CEX do not control their private keys — the exchange does. This exposes users to: exchange insolvency (FTX, $8B+, 2022), hacks (Mt.Gox, 850,000 BTC, 2014), withdrawal freezes, and regulatory seizure.
Proof-of-Reserves (PoR)
Post-FTX, major CEXs publish Merkle-[tree](/en/terms/merkle-tree)-based Proof-of-Reserves attestations to prove that user deposits are fully backed. However, PoR only proves assets — not liabilities — leaving the verification incomplete without a full balance sheet audit.
Regulatory Landscape
CEXs must comply with AML/KYC laws and obtain licenses (e.g., BitLicense in NY, MiFID II in the EU, MAS in Singapore). Non-compliant exchanges face fines and shutdowns.
❓ Frequently Asked Questions
What is the main risk of using a CEX?
Custodial risk: you do not control your private keys. If the exchange is hacked, goes bankrupt (like FTX in 2022), or freezes withdrawals, you may lose access to your funds.
What is Proof-of-Reserves?
A Proof-of-Reserves (PoR) is a cryptographic attestation that a CEX actually holds the assets it claims to hold for users. After FTX collapsed, it became a standard practice for exchanges to publish Merkle-tree-based PoR reports. However, PoR only proves assets, not liabilities.
What is the difference between a maker and a taker on a CEX?
A market maker places a limit order that sits on the order book, adding liquidity. A taker executes against an existing order, removing liquidity. Makers typically pay lower fees than takers.