A cryptocurrency exchange is a platform that enables you to buy, sell or trade crypto. Some crypto exchanges allow you to trade one type of coin for another. Others also allow you to purchase crypto using U.S. dollars or another form of currency backed by a government or to sell your crypto holdings for cash.
There are three different types of crypto exchanges available today and, within these categories, more than 500 exchanges and apps to choose from.
What Types of Crypto Exchanges Are There?
There are three main types of crypto exchanges recognized by crypto investors and users. They are:
- Centralized cryptocurrency exchange (CEX)
- Decentralized cryptocurrency exchange (DEX)
- Hybrid cryptocurrency exchange (HEX)
Keep reading to learn the benefits, features, similarities and differences among the three main types of crypto exchanges.
1. Centralized Crypto Exchanges
Centralized crypto exchanges, like Coinbase, Binance and Kraken, function in the same way as a stock trading platform or a financial institution. The CEX handles the transaction, holding the funds until a purchase or sale takes place.
If you put in a “sell” order for your crypto, the exchange finds another user looking to buy and facilitates the transaction. Typically, the CEX will take a fee in exchange for their service. A CEX tends to be easy to use and may be the best way for a beginner to get involved in crypto investments.
- Easy to use
- Allows fiat-to-crypto exchanges
- Some CEXs carry insurance against theft of funds held on the exchange
- Provides customer support
- Offers liquidity of funds
- Not all CEXs are insured against theft or hacking
- May be vulnerable to hacks
- CEXs collect transaction fees
2. Decentralized Crypto Exchanges
A decentralized crypto exchange is not managed by any particular entity or owner. Instead, trades are automated and executed via smart contracts on the blockchain. Most DEXs operate on the Ethereum blockchain.
Unlike a CEX, where the exchange acts as a middleman to facilitate transactions, a DEX allows person-to-person trades.
DYdX and Uniswap are two of the largest DEX platforms, holding 0.0027% and 0.006% of the market share currently. Both have more than $700,000 trading volume per day.
- Lower fees than a CEX, in most cases
- Enhanced security compared to a CEX
- Increased privacy
- More difficult for beginners
- Does not accept fiat-to-crypto exchanges
- Lack of customer support
- Less liquidity than a CEX
3. Hybrid Crypto Exchanges
Hybrid crypto exchanges seek to combine the best features of a CEX and DEX to create a secure, easy-to-use platform for crypto trading and investing. Qurrex is one of the most prevalent hybrid exchanges, designed for brokers, investors and others who are familiar with crypto trading.
Through a HEX, users can trade assets directly from digital wallets. A HEX offers the security and anonymity of a DEX with the regulation and customer service of a CEX, in most cases.
- Enhanced security compared to CEX platforms
- Allows fiat-to-crypto exchanges
- May offer 24/7 support
- Users maintain control of their funds
- Not as many choices in HEXs
- May be difficult or easy to use, depending on the interface
- Not tailored to beginners
HEX platforms could be the future of crypto trading, providing the customer service and convenience of a CEX with the anonymity and security of a DEX.
The type of crypto exchange you choose right now may depend on your level of expertise and comfort when trading crypto, as well as the type of crypto you’d like to exchange. Beginners may want to rely on a CEX as they get started learning the ins and outs of crypto trading and investing.
FAQHere are the answers to some of the most frequently asked questions about crypto exchanges.
- What is the difference between DeFi and DEX?
- The term DeFi stands for "decentralized finance" and represents any platform that is not affiliated with a government, bank or other financial institution. A DEX is, specifically, a decentralized crypto exchange. All DEXs are part of DeFi, but not every DeFi platform is necessarily a DEX.
- How many types of cryptocurrency markets are there?
- Cryptocurrency markets fall into two categories: primary markets and secondary markets. A primary market describes the blockchain where the coin is initially issued. Secondary markets are the crypto exchanges where coins are bought, sold and traded.
- What is the most used crypto exchange?
- Binance, Kraken and Coinbase are three of the largest crypto exchanges based on trading volume.
Information is accurate as of March 13, 2023.