Here is the difference between traditional vs decentralized exchanges
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- Centralized
- Regulated (KYC)
- Require user deposits
- User submits a “Buy” or “Sell” order
- Orders listed in orderbook
- The centralized exchange matches the buyers with the sellers
- Liquidity depends on amount of orders
- Market makers supply liquidity
- Trade is conducted when a buyer and seller agree
- Price = price of the most recent trade
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- Part of the DeFi ecosystem
- Set of automated rules
- Executed by independent computers
- Smart contracts
- Can’t be regulated
- Open to everyone
- No need for an account
- No need to deposit funds
- No orderbook
- Liquidity created through liquidity pools
- Shared pot of funds used by DEXs
- LP = Liquidity Providers
- LPs receive pool fees (trading fees) in a process called Liquidity Mining
- No orderbook
- Mathematical formula determines the price
- Automated Market Maker