DEX vs CEX
When you move from an exchange to a wallet, which risks did you swap?
The idea
Centralized exchanges custody assets and match orders internally; decentralized exchanges settle through smart contracts and user wallets.
In the real world
A CEX offers familiar order types, while a DEX adds gas, pool, and contract risk.
Going deeper
Moving from a centralised exchange to a decentralised one swaps one risk set for another rather than removing risk. Custody risk goes; smart contract risk, execution risk and total responsibility for key security arrive.
Contract risk is the one people underweight. Pool code can be exploited or misconfigured, and there is no counterparty to appeal to. Execution risk is more mundane and more frequent: gas costs, failed transactions, thin pool depth and front-running all degrade the price you actually get, in ways the quoted rate does not show.
Where it stops applying
For small trades in deep pools the practical differences are modest, and for large or illiquid trades they can be substantial in either direction. Neither venue type is safer in general.
Why it matters
Self-custody removes some counterparty risk and introduces a different set, rather than removing risk.
Try this today
Compare custody, transparency, liquidity, fees, and recovery options.
Test yourself
You move from a centralised exchange to a decentralised one to avoid custody risk. Name two risks you have taken on instead.
Show the answer
Smart contract risk, since the pool code can be exploited or misconfigured, and execution risk from gas costs, pool depth, failed transactions and MEV. You also become solely responsible for key security, with no recourse if it goes wrong.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.