Centralized Exchange — a crypto trading platform operated by a company that custodies user funds (Coinbase, Binance, Kraken).
A centralized exchange (CEX) is a cryptocurrency trading platform operated by a company that acts as an intermediary between buyers and sellers. Users deposit funds into the exchange's custody, and the exchange matches orders through an internal order book. Major CEXs include Coinbase, Binance, Kraken, Bybit, and OKX. CEXs offer advantages over DEXs: faster execution, deeper liquidity, fiat on/off ramps, customer support, and a familiar trading interface. The tradeoff is custodial risk — the exchange holds your funds, and exchange failures (FTX, Mt. Gox) or hacks can result in total loss. The crypto phrase 'not your keys, not your coins' reflects this risk. Modern CEXs have improved security significantly with cold storage, insurance funds, and proof-of-reserves, but the fundamental custodial risk remains.
Centralized exchanges (CEXs) like Coinbase, Binance, and Kraken act as intermediaries that match buyers and sellers, hold customer funds in custody, and provide familiar trading interfaces. They remain the primary on-ramp for new crypto users and handle the majority of trading volume due to superior speed, liquidity, and user experience compared to decentralized alternatives. However, CEX custody means 'not your keys, not your coins' — when you deposit to an exchange, you trust them to safeguard your assets. The FTX collapse in November 2022 demonstrated the catastrophic risk: billions in customer funds were misappropriated, and users couldn't withdraw. Modern CEXs have responded with Proof of Reserves audits, though these vary in rigor and don't guarantee full solvency. Regulation is increasingly requiring exchanges to segregate customer funds and maintain adequate reserves.
When FTX collapsed in November 2022, customers lost access to an estimated $8 billion in deposits — illustrating the catastrophic risk of centralized exchange custody, even with one of the world's largest platforms.
It's convenient but risky for large amounts. CEXs can be hacked, frozen by regulators, or become insolvent (as FTX showed). Best practice: use CEXs for trading and fiat on/off-ramps, then transfer significant holdings to a self-custody wallet (hardware wallet for maximum security). Only keep on exchanges what you actively need for trading.