Centralized Exchanges vs DeFi platforms: A comprehensive guide

Welcome to Centralized Exchanges (CEX) and Decentralized Finance (DeFi) platforms. You can buy, sell, trade, and store cryptocurrencies on these platforms. But you’ll have to decide which of the two benefits you the most. If you prefer trusting your assets to a well-known company, DeFi won’t suit you. But if you need full control over your assets, then DeFi might be best.

While CeFi has established itself as the old boss, DeFi is a newer kid on the block. DeFi is changing the financial landscape, creating a new future for the cryptocurrency market. And that future starts with you, where the choice between trusting tried-and-true or embracing the autonomy of DeFi will shape the dynamic world of cryptocurrencies.

Want to get the both of both worlds when it comes to CEXs vs. DeFi? Sign up for the Haven1 testnet today.

What’s the deal with Centralized Exchanges (CEX)?

A centralized exchange is a trading platform created and run by a single company. Most people opt for CEXs as their go-to platform, especially when they’re first starting in crypto trading. It offers a user-friendly interface and active customer support, making it an ideal choice for beginners and experienced traders alike. 

From a bird’s eye view, a centralized authority oversees and sets the rules for all transactions. CEX companies will have direct control over your digital assets through a custodial wallet, where they could freeze your account or limit the cryptocurrency offerings. Nonetheless, it remains a popular choice for those seeking a traditional trading experience.

Here are some advantages of CEX:

• High liquidity
• Customer support
• Familiar trading model
• User-friendly navigation

Meanwhile, CEX is an option down the drain for some traders. Its centralized control and custodial wallets have raised concerns about data security and transparency. Even with regulatory assurance, traders have lost trust in CEXs due to a lack of control over their digital assets.

Here are some of its disadvantages:

• Vulnerable to cyber criminals
• Centralized rules
• High transaction fees
• Restriction in other countries or regions

Shifting to Decentralized Finance (DeFi)

A decentralized exchange (DEX) is run by blockchain technology through a decentralized network of computers. A person or group of people initiates to set up the development of a DeFi platform. However, the setting up process ensures that no single entity has control over the app once it’s created. Like in a flea market, peer-to-peer transactions are easier and users will have full control over what assets to trade.

The rise of DeFi transformed the way individuals and institutions interact with cryptocurrencies. People with less collateral can benefit from financial inclusions. Borrowers are given creative investment opportunities. Financial transactions are becoming secure. And the best thing is - DeFi is like putting all the financial secrets in a see-through jar where it’s all out there for everyone to see.

Here are the advantages of DeFi:

• Increased asset control
• Secure and transparent network
• Faster transactions
• No geographic limitations
• Lower transaction fees

However, decentralized finance can be complex and technical - the reason why most users haven’t yet tapped into it. DeFi apps like Haven1 focus on the mass adoption of on-chain finance, serving both retail and institutional investors, because, let’s face it, DeFi is still a work in progress, similar to using the latest smartphone in a world that hasn’t quite figured out touch screens yet. 

Here are the disadvantages of DeFi:

• Market risks and volatility
• No customer support
• Requires tech-savvy expertise
• Lacks regulatory assurance

Haven1: the best of both worlds

Decision-making in finance all comes down to whether you trust people or technology better. Choosing between CEX and DeFi can involve a trade-off between convenience and control when starting your cryptocurrency journey. With CeFi, what you only have control over is your account login information. As for DeFi, there are endless possibilities for asset control and ownership.

It’s your call since risk appetites can vary. CEX is usually the way to go for starters. But with DeFi, Haven1’s approach involves a user-friendly interface, risk mitigation measures, and comprehensive educational support to new users.