Centralized Crypto Exchanges (CEX): Structure, Features, and Security

A centralized crypto exchange (CEX) is where most people first encounter crypto. Here you can buy or sell coins, store assets and withdraw profits. More than 80 % of all market transactions go through CEXs.

In this article you will learn:

• how a centralized crypto exchange is structured and why it still dominates;
• what Proof of Reserves (PoR) is and how exchanges demonstrate transparency;
• how to keep control of your funds on an exchange and reduce the risks of the custodial model.

CEXs offer speed and convenience, but require trust. To use them safely, it’s important to understand how everything works from the inside.

A centralized crypto exchange (CEX) is an intermediary between the user and the blockchain. It holds clients’ assets, processes trades and controls the transfer of funds on the network. The term “centralized” means that all operations go through the company’s internal servers. The user does not interact directly with the blockchain — the exchange does so on their behalf.

The workflow is simple:

• You deposit a balance. The exchange credits the deposit to its internal ledger.
• You make trades. Orders are matched in the order-book and the transaction is executed instantly.
• You make a withdrawal. The exchange sends coins from the corporate wallet out to the network.

This is the custodial exchange model, which means the platform holds the private keys, not you. It’s convenient, but it creates dependency: if your account is locked, you temporarily lose access to your assets.

The operations of a centralized exchange follow a straightforward sequence: registration and account verification → deposit → trading → withdrawal. First the user goes through KYC (Know Your Customer), verifies their identity and gains access to all features. After that they can top up the balance using a bank card, via P2P or by a wallet address.

Trading takes place inside the system. The exchange maintains an internal order-book where buy and sell orders are placed. When the buy price matches the sell price, the trade executes instantly. At this point no blockchain entry is made, because everything happens in the internal database. That is why CEXs provide speed that decentralized platforms cannot match.

Withdrawal of funds is the only moment when the operation goes on-chain. Before that the system requests confirmation via two-factor authentication, SMS or email to ensure the request was made by the account owner. Then the exchange deducts the network fee, the amount of which depends on the selected network, for example TRON, Ethereum or BNB Chain. Each platform has its own fee policy. In some networks, the withdrawal cost is just a few cents; in others — a few dollars.

The main feature of a CEX is the custodial model. All deposits are held in the exchange’s wallets, and users do not hold the private keys. This can be compared to a bank account where the client sees the balance, but the operator controls it. This format is convenient for trading and fast transfers, but requires trust in the platform and careful attention to security. Users should use strong passwords, enable two-factor authentication and avoid phishing links.

Centralized crypto exchanges have long since ceased to be just exchangers. Today they are full-fledged financial platforms combining broker, bank and payment-service functions.

On centralized trading platforms all types of operations are available — from buying BTC for USDT to leveraged trading and derivatives. Spot, Margin, Futures — these are basic segments of every CEX. Major exchanges such as Binance, OKX and Bybit process over $60 billion in trading volume daily. During periods of volatility that figure can exceed $100 billion per day. Exchanges provide instant order execution thanks to high liquidity and internal order-matching (matching engine). According to Kaiko Research, the average delay in order execution on the top-5 exchanges is under 25 milliseconds, which is comparable to stock-broker performance.

One of the main advantages of centralized crypto exchanges is the ability to work with fiat currency. CEXs allow purchasing crypto for USD, EUR, UAH, KZT and other currencies via Visa, MasterCard, bank transfer or P2P section. Thanks to fiat gateways, a user can move money from a bank into digital assets in minutes. For example, according to Binance Research, the share of fiat trades in total trading volume rose from 18 % in 2022 to 42 % in 2025. No decentralized platform (DEX) offers such direct access to real currencies — which is why CEXs remain the main “bridge” between crypto and fiat.

Centralized exchanges are responsible for custodial storage of assets. Clients’ funds are divided into hot wallets (for quick transactions) and cold storage (for reserves). At major platforms up to 95 % of all funds are in offline cold storage, isolated from the internet. Example: Kraken and Bitstamp undergo independent custody audits annually, and Binance publishes wallet addresses under its Proof of Reserves programme. For internal operations multi-signature and distributed keys are used, which reduces the risk of hacking even if one server is compromised. Storing cryptocurrencies on an exchange suits active traders and those who make daily trades. However, for longer-term investing it is recommended to withdraw assets to personal wallets.

Modern CEXs evolve faster than traditional banks. Besides trading, they offer a whole set of instruments:

• Earn-programmes with interest on staking and deposits;
• Launchpad platforms for participation in token sales;
• NFT-markets and token-renting programmes;
• API access for algorithmic trading and integration with third-party bots;
• Investment products including copy-trading and index portfolios.

For example, on OKX Earn the average return on USDT deposits is 5–7 % per annum, and Binance Launchpad has launched more than 70 projects since 2019, including StepN and Hooked Protocol. Thanks to these functions, centralized crypto exchanges have become multi-layered financial platforms combining trading, custody and investment in one ecosystem.

The main advantage of CEXs is simplicity and speed. Even a beginner can navigate them in 10 minutes. High liquidity of the crypto exchange. On top platforms the spread between buy and sell prices is minimal and orders are executed instantly. Fiat gateways. You can deposit and withdraw money from bank cards. User support. 24/7 tech support, account protection, reimbursement in case of transfer errors. Security. Modern CEXs use multi-signatures, anti-phishing codes and two-factor authentication. According to CryptoCompare, the combined liquidity of the top-10 CEXs in 2025 rose by 23 %, and the share of fiat operations reached 42 % of all trades.

The main issue is the lack of full control over assets. You don’t hold the private keys, which means you depend on the operator’s integrity and their cybersecurity. According to Chainalysis, in just the first half of 2025 hackers stole more than $2.17 billion from crypto services, and 71 % of those attacks fell on centralized trading platforms. The largest hack — Bybit in February 2025: losses exceeded $1.46 billion.

Common causes of incidents:

• compromise of hot wallets — 82 % of cases;
• API vulnerabilities — 17 %;
• phishing access to accounts — 29 %.

Internal errors are also not rare: about 11 % of hacks are linked to collusion of employees.

KYC (Know Your Customer) is mandatory identity verification. It is required by regulators to prevent money-laundering (AML) and illicit transfers. After the collapse of FTX in 2022, requirements became stricter, and now almost all CEXs must identify customers. For the user this is additional account protection on the exchange. If access is lost, it can be restored via documents.

Usually there are three KYC levels:

• basic — passport and selfie;
• advanced — address verification;
• corporate — for companies and funds.

Without verification fiat gateways and large withdrawals are unavailable.

Security on a crypto exchange is determined by three parameters: transparency, reputation and speed of withdrawals. After FTX many platforms started publishing Proof of Reserves (PoR) — reports on clients’ reserves. This is a cryptographic proof that the exchange holds users’ assets 1:1.

In May 2025, BTCC showed a reserve ratio of 152 %. Gate.io — 128 %, OKX — 102 % in BTC. The aggregate reserves of all CEXs are estimated at $358 billion (CryptoRank). Some auditors, including Mazars, refused to audit exchanges after 2022 — such reports without external oversight do not guarantee reliability.

Also check:

• license and jurisdiction (Singapore, Estonia, Cayman Islands);
• trading volume and ranking on CoinMarketCap;
• reviews and reputation in the community.

Exchanges publishing PoRs are more resilient during market crises — users trust them and do not rush to withdraw funds in panic.

According to Halborn, 70 % of user losses occur not because of exchange hacks but due to phishing and fake sites. To protect your account:

• enable two-factor authentication (2FA);
• use anti-phishing code;
• don’t follow links from ads or emails;
• check SSL certificate and domain (https and lock icon);
• don’t store seed phrases online.

Tip: keep on the CEX only the funds you use for trading. Major assets are better stored in a cold wallet.

When a CEX is hacked, the entire custodial model suffers. If hackers gain access to a hot wallet, the assets of all users are at risk. To reduce risks:

• check Proof of Reserves;
• diversify assets;
• use cold wallets for long-term storage.

Some platforms insure losses. The Binance SAFU fund is estimated at $1 billion and is used for compensation. But not all exchanges have such protection: Mt. Gox, QuadrigaCX and FTX were not able to return billions of dollars to clients.

A centralized crypto exchange is a convenient and fast tool for trading, but not a place for long-term storage. It offers liquidity, fiat gateways and professional services, but requires trust in the operator. A CEX suits active traders and those who value transaction speed. However the rule remains simple: trade on the exchange, but store on your own.