What is a Centralized Exchange (CEX)?

How Does a CEX Work?

1. User Registration & KYC Verification:
   • Users create an account and complete identity verification to comply with regulations.
2. Depositing Funds:
   • Users deposit fiat currency (USD, EUR, etc.) or digital currencies into their exchange account.
3. Trading on the Platform:
   • Users can place buy and sell orders for various digital currencies using market or limit orders.
4. Custodial Wallet Management:
   • Unlike decentralized wallets, CEXs hold user funds in custodial wallets, meaning the exchange is responsible for securing assets.
5. Withdrawals & Conversions:
   • Users can withdraw digital currencies or convert them into fiat currency, depending on exchange policies.

Examples of Popular Centralized Exchanges (CEXs):

• Binance
• Coinbase
• Kraken
• KuCoin
• Bitfinex

Advantages of a CEX:

✔ User-Friendly Interface: CEXs are beginner-friendly and provide customer support.‍

✔ High Liquidity: These platforms handle large trading volumes, ensuring efficient transactions‍

✔ Advanced Trading Features: CEXs offer margin trading, staking, and market analysis tools.‍

✔ Fiat On-Ramp: Users can easily buy digital with credit cards, bank transfers, and payment gateways.

Disadvantages of a CEX:

✖ Custodial Risk: Users must trust the exchange to safeguard funds, increasing the risk of hacks.

✖ Regulatory Compliance: Some CEXs require KYC and AML (Anti-Money Laundering) procedures, reducing anonymity.

✖ Potential Centralization Risks: Exchanges can freeze accounts or be subject to government regulations.

How Does a CEX Relate to CGS?

The Community Grocery Store (CGS) plans to list its tokens on a CEX to provide:

• Easier Access to CGS Tokens: Users can obtain and trade CGS tokens through a trusted exchange.
• Liquidity & Market Stability: A CEX ensures high-volume trading, reducing price volatility.
• Fiat Conversion: Users can buy CGS tokens using traditional currencies.