DEX vs CEX: Choosing the Best Solution for Your Crypto Exchange

Maciej Zieliński

08 Nov 2021
DEX vs CEX: Choosing the Best Solution for Your Crypto Exchange

What are the differences between DEX and CEX? Which one suits your needs and business assumptions best? Read this article before you make that crucial decision.

In the article you learn about:

  • Different types of crypto exchanges
  • What is a centralized exchange?
  • Pros and cons of centralized exchanges
  • How does decentralized exchange work?
  • Liquidity pools and Automatic Market Maker
  • Pros and cons of decentralized exchanges

Crypto Exchanges

The cryptocurrency exchange is an indispensable part of cryptocurrency trading, which may be considered as one of the most important financial trends of this century. Hence more and more investors are becoming interested in launching their own exchange. The fundamental decision that has to be made at the begging is choosing the model of crypto trading that will meet our requirements. 

In this article, we'll take a closer look at centralized and decentralized exchanges, which will hopefully enable you to examine which of them is right for your project in the crypto space.

Centralized Exchange
Centralized Exchange

Centralized Exchange

Most big cryptocurrency exchanges you know are probably centralized. Coinbase, Binance, BKEX, or Upbit - you are familiar with them. Thanks to higher liquidity and lower transaction fees they remained the first choice of crypto traders for a long time.

Times have changed and players such as decentralized exchange Uniswap or Sushi Swap have gained significant importance in the crypto market. Yet, in many cases, centralized exchanges still remain the most suitable solution. What's their backbone?

Centralization of an exchange

Centralization of the exchange essentially means that each trade there takes place with a centralized intermediary. The centralized exchange has its order book, where every order is recorded and validated. All the data is stored and exchanged between exchange servers. Additionally, transactions and user information go through a centralized security process.

To access the exchange, users have to sign up by providing their bank details and personal data. This is the part of KYC and AML practices, which aim to prevent money laundering and have to be followed by every centralized exchange. 

Buying cryptocurrencies on a centralized exchange

Trading on centralized exchanges generally seems simple. You just need to choose coins and confirm the transaction. The exchange will show the funds you acquired in your account. Then you can trade them for other digital assets. The price of each coin on the site is based on an order book.

However, users don't really hold their funds. The exchange works here as a custodian of the customer’s funds. Furthermore, trades don't occur on the blockchain. Instead, they take place only within the exchange's database.

Centralized exchange - pros and cons
Centralized exchange - pros and cons

Pros of Centralized Exchanges


Generally, centralized exchanges have a more user-friendly platform. They give users easy and uncomplicated access to crypto trading. This is especially relevant for crypto newcomers.

High liquidity

Since the whole process doesn't take place on a blockchain, the network nodes don't have to be updated in real-time, hence trading speed is usually much higher than on DEX.

Lower transaction fees

The trading fee on CEX is fixed, and they tend to be lower than on decentralized exchanges for the same reason as stated above.

Trading with fiats

Unlike DEXs, centralized exchanges allow users to buy crypto for fiat currencies.

Cons of Centralized Exchanges

More legal regulations

Centralized exchanges are limited by strict government requirements. For example, high standards of the identity verification process have to be respected.

Centralized entity

From a technical point, when you deposit funds on a centralized exchange, you lose control over it. The exchange puts your funds into integrated wallets controlled by it.

Additionally, CEXs extract users' private keys. They will no longer be your keys. Therefore, if you want to withdraw your money, the exchange has to sign the transaction on your behalf.

This is an important reason why many traders migrate to decentralized exchanges.

Risk of leaking private user data

Due to KYC procedures, crypto users provide extensive data. As such information is fragile, a security dilemma is present even before one starts trading. This may lead to the lack of users’ trust, especially when we talk about smaller, less-known exchanges.

Decentralized Exchange
Decentralized Exchange

Decentralized Exchange

In many ways, decentralized exchanges are similar to centralized ones. However, the differences are more than substantial. In decentralized exchanges, trade essential relies on a blockchain (most often Ethereum or the Binance Smart Chain). Trading between users is conducted using smart contracts - orders are executed on-chain. As a result, the exchange doesn't take control of users' assets during the entire process.

Cross-chain exchanges are a very promising novelty on the DEX market. Yet, most of them operate only on one blockchain - most often Ethereum or the Binance Smart Chain.

How can a decentralized exchange handle trading?

How DEX handles trading
How DEX handles trading

On-chain order book

There are decentralized exchanges where every transaction is written into a blockchain. This means that every order, as well as cancellation or alteration, is handled on-chain.

Without a doubt, this is the purest approach to decentralization. There is absolutely no third party involved at any stage of trading. Everything is extremely transparent. Unfortunately, there are vital downsides as well.

The on-chain order book is far less practical than the other two options. Firstly, because every node on the blockchain records the order, placing it requires paying a fee. Furthermore, users have to wait until the miner adds necessary data to the chain. This translates to high costs and poor liquidity.

Off-chain order book

Off-chain order books are a bit more centralized than their counterparts. But they are also far more practical. In this model, orders are hosted elsewhere and only the final transaction is settled on the blockchain. Moreover, you can still benefit from non-custodial storage.

As orders aren't stored on-chain, this approach is faster and less costly. Furthermore, it helps a better liquidity of trades to be achieved. However, it can encounter some of the security issues typical for CEXs.

Trading pairs 

Let’s use the example of Ether and Bitcoin to describe how trading pairs work in the order book model on DEX

If users want to trade their ETH for BTC, they need to find another trader willing to sell BTC for ETH. Furthermore, they need to agree on the same price. 

While in the case of popular cryptocurrencies and tokens, finding a trading pair shouldn’t be a problem, things get a bit more complicated when we want to trade more alternative assets. 

The vital difference between order books and automatic market makers is that the second one doesn’t require the existence of trading pairs to facilitate trade.

Automatic Market Maker AMM

Automated Market Maker (AMM) is a decentralized exchange protocol that relies on smart contracts to set the price of tokens and provide liquidity. In an automated market makers' model, assets are priced according to a pricing algorithm and mathematical formula instead of the order book used by traditional exchanges.

Essentially, they are autonomous trading machines that replace traditional order books with liquidity pools run by algorithms. According to many, it was the development of AMM that enabled the mass adoption of decentralized exchanges.

Dentralized exchange - pros and cons
Dentralized exchange - pros and cons

Pros of Decentralized Exchanges


Most of the DEXs don’t have to follow KYC and AML requirements, because they don’t intermediate in transactions between parties. That’s why it’s often more convenient to build your own DEX than CEX. 

No third parties involved

The basic idea behind decentralized trading is removing third-party providers. All transactions take place in a peer-to-peer or peer-to-contract model. 

Full control of your assets

A decentralized exchange doesn't hold the user's assets or private keys. Therefore funds are under the user's control at every stage of trading.

More diversified crypto assets

On the DEX platform, trades of tokens that aren’t listed on CEXs are possible.

Cons of Decentralized Exchanges

Trading volume

The volume traded on CEXs is still much higher than that on DEXs. Liquidity is lower as well.

Higher fees

This is not an absolute standard, but when it comes to trading fees CEXs often offer better prices.


A decentralized exchange is less user-friendly than a traditional one.


Developing DEX vs CEX

Crypto space develops at a tremendous speed, continuously bringing new possibilities. The number of people interested in crypto investments increases every day; hence the popularity of both decentralized and centralized exchanges has recently grown significantly. You need to bear this in mind when deciding to launch your crypto exchange.

Launching a crypto exchange requires not only experience of blockchain developers’ fluently using blockchain protocols but also a solid and well-planned business strategy. That's why choosing a technology partner with previous experience with both blockchain development and business consulting in the crypto field might be the optimal solution.

Do you want to gain more first-hand knowledge regarding building crypto exchanges? Don't hesitate to ask our professionals who will be happy to answer your questions.

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Token Engineering Process

Kajetan Olas

13 Apr 2024
Token Engineering Process

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that. 

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.


Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase. 

Token Engineering Artonomous Design Diagram
Artonomous design diagram, source: Artonomous GitHub

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling 

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

  • Systems Engineering
  • Machine Learning
  • Market Research
  • Capital Markets
  • Current trends in Web3
  • Blockchain Engineering
  • Statistics


The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.


What does token engineering process look like?

  • Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

  • We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

  • It depends on the project and may range from 2 weeks to 5 months.

What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained


18 Mar 2024
What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Enter Berachain: a high-performance, EVM-compatible blockchain that is set to redefine the landscape of decentralized applications (dApps) and blockchain services. Built on the innovative Proof-of-Liquidity consensus and leveraging the robust Polaris framework alongside the CometBFT consensus engine, Berachain is poised to offer an unprecedented blend of efficiency, security, and user-centric benefits. Let's dive into what makes it a groundbreaking development in the blockchain ecosystem.

What is Berachain?


Berachain is an EVM-compatible Layer 1 (L1) blockchain that stands out through its adoption of the Proof-of-Liquidity (PoL) consensus mechanism. Designed to address the critical challenges faced by decentralized networks. It introduces a cutting-edge approach to blockchain governance and operations.

Key Features

  • High-performance Capabilities. Berachain is engineered for speed and scalability, catering to the growing demand for efficient blockchain solutions.
  • EVM Compatibility. It supports all Ethereum tooling, operations, and smart contract languages, making it a seamless transition for developers and projects from the Ethereum ecosystem.
  • Proof-of-Liquidity.This novel consensus mechanism focuses on building liquidity, decentralizing stake, and aligning the interests of validators and protocol developers.


EVM-Compatible vs EVM-Equivalent


EVM compatibility means a blockchain can interact with Ethereum's ecosystem to some extent. It can interact supporting its smart contracts and tools but not replicating the entire EVM environment.


An EVM-equivalent blockchain, on the other hand, aims to fully replicate Ethereum's environment. It ensures complete compatibility and a smooth transition for developers and users alike.

Berachain's Position

Berachain can be considered an "EVM-equivalent-plus" blockchain. It supports all Ethereum operations, tooling, and additional functionalities that optimize for its unique Proof-of-Liquidity and abstracted use cases.

Berachain Modular First Approach

At the heart of Berachain's development philosophy is the Polaris EVM framework. It's a testament to the blockchain's commitment to modularity and flexibility. This approach allows for the easy separation of the EVM runtime layer, ensuring that Berachain can adapt and evolve without compromising on performance or security.

Proof Of Liquidity Overview

High-Level Model Objectives

  • Systemically Build Liquidity. By enhancing trading efficiency, price stability, and network growth, Berachain aims to foster a thriving ecosystem of decentralized applications.
  • Solve Stake Centralization. The PoL consensus works to distribute stake more evenly across the network, preventing monopolization and ensuring a decentralized, secure blockchain.
  • Align Protocols and Validators. Berachain encourages a symbiotic relationship between validators and the broader protocol ecosystem.

Proof-of-Liquidity vs Proof-of-Stake

Unlike traditional Proof of Stake (PoS), which often leads to stake centralization and reduced liquidity, Proof of Liquidity (PoL) introduces mechanisms to incentivize liquidity provision and ensure a fairer, more decentralized network. Berachain separates the governance token (BGT) from the chain's gas token (BERA) and incentives liquidity through BEX pools. Berachain's PoL aims to overcome the limitations of PoS, fostering a more secure and user-centric blockchain.

Berachain EVM and Modular Approach

Polaris EVM

Polaris EVM is the cornerstone of Berachain's EVM compatibility, offering developers an enhanced environment for smart contract execution that includes stateful precompiles and custom modules. This framework ensures that Berachain not only meets but exceeds the capabilities of the traditional Ethereum Virtual Machine.


The CometBFT consensus engine underpins Berachain's network, providing a secure and efficient mechanism for transaction verification and block production. By leveraging the principles of Byzantine fault tolerance (BFT), CometBFT ensures the integrity and resilience of the Berachain blockchain.


Berachain represents a significant leap forward in blockchain technology, combining the best of Ethereum's ecosystem with innovative consensus mechanisms and a modular development approach. As the blockchain landscape continues to evolve, Berachain stands out as a promising platform for developers, users, and validators alike, offering a scalable, efficient, and inclusive environment for decentralized applications and services.


For those interested in exploring further, a wealth of resources is available, including the Berachain documentation, GitHub repository, and community forums. It offers a compelling vision for the future of blockchain technology, marked by efficiency, security, and community-driven innovation.


How is Berachain different?

  • It integrates Proof-of-Liquidity to address stake centralization and enhance liquidity, setting it apart from other blockchains.

Is Berachain EVM-compatible?

  • Yes, it supports Ethereum's tooling and smart contract languages, facilitating easy migration of dApps.

Can it handle high transaction volumes?

  • Yes, thanks to the Polaris framework and CometBFT consensus engine, it's built for scalability and high throughput.