A CEX organises trading through a central operator. A DEX uses blockchain contracts and infrastructure so that a wallet can authorise a trade. In the OTC market, a transaction is negotiated bilaterally or through an intermediary, outside a public multilateral order book.
In simple terms — The three labels describe more than where someone clicks. They identify who receives the instruction, where the price is formed, who controls the assets while the trade is open, and how final settlement takes place.
The three questions that separate CEX, DEX, and OTC
Classifying a trade requires three questions. Who coordinates the trade? It may be an operator, a set of smart contracts, or a dealer or broker. Where is the trade recorded? Matching may occur in a private ledger, on a blockchain, or through a bilateral confirmation. Who controls the assets? A platform balance, a wallet, and a deposit into a smart contract confer different powers and risks.
The answers can be combined. A centralised operator can offer an OTC desk; a DEX can use an order book; an order collected by one interface can be routed to several protocols. CEX, DEX, and OTC are useful models, not perfectly separate boxes.
CEX: the order enters an operator's system
On a centralised exchange, a user opens an account and normally deposits cash or crypto assets. The operator keeps internal balance records, applies its admission rules, and may match orders in a book. A fill first changes the internal account; a blockchain transaction may appear only when funds are deposited or withdrawn.
This structure can make matching and cancellation fast, but it concentrates functions and dependencies. The same firm or group may combine the platform, brokerage, custody, market making, lending, and proprietary tokens. A reader should therefore separate the role performed at each step, conflicts, segregation of assets, withdrawal rules, and operational continuity. The exchange risk page develops this perimeter.
DEX: execution through contracts and a network
On a decentralised exchange, a user signs through a wallet an action that interacts with one or more contracts. The trade and its outcome are normally recorded on-chain. It is not always necessary to pre-fund an omnibus account, but a spending approval or a deposit into a contract may still be required.
“Non-custodial” does not mean trust-free. Upgradeable contracts, frontends, governance, sequencers, oracles, bridges, and administrative keys can affect the trade. A signature controls the initial authorisation; it does not certify the code, the token received, the price, or the future exit route. Network finality, failed transactions, congestion, and MEV also matter.
OTC: a quote is formed outside the public book
Over the counter describes trading outside a public multilateral book. A client may request a quote from a dealer, compare several counterparties through a request for quote, or entrust execution to a broker. The process can be conducted by voice, chat, or a fully electronic system.
The price often incorporates size, risk taken by the dealer, hedging, and settlement terms. OTC can therefore serve orders that would materially affect visible liquidity, but it does not guarantee a better price. “OTC” does not automatically mean anonymous, unregulated, or uncleared: obligations and infrastructure depend on the service, instrument, and jurisdiction.
Order books, AMMs, and RFQs are not synonyms for CEX, DEX, and OTC
The venue model and the price mechanism are separate dimensions. An order book ranks bids and offers under a rulebook. An automated market maker calculates a swap against pool reserves and its function. A request for quote asks one or more counterparties for a firm or indicative price for a defined size.
Many CEXs use books and many DEXs use AMM pools, but that is not their definition. Hybrid architectures, on-chain or partly off-chain books, and wallet-connected RFQ systems also exist. The mechanism alone does not reveal who has custody, who is the counterparty, or where settlement occurs.
The same trade, three paths
Suppose a trader converts 10,000 USDC into ETH. On a CEX, the USDC is credited to an account, the order receives one or more fills, and the new balance can be withdrawn. On a DEX, the wallet authorises the swap, the chosen mechanism runs, and the network includes the transaction. In OTC trading, the client requests a quote for the size, accepts its price and validity window, and settles under the agreed instructions.
The economic outcomes cannot be compared by looking at the final price alone. They require the same reference time, the same size, the actual assets received, and every cost up to the place where those assets are meant to be held.
Costs to add up
On a CEX, trading fees, spread, slippage, market impact, fiat conversion, and withdrawal costs may apply. On a DEX, protocol or pool fees, gas, priority, price impact, approvals, bridges, and possible MEV must be added. OTC spreads or mark-ups, commissions, credit, hedging, and settlement may be itemised or embedded in the quote.
A low percentage fee does not identify the cheapest path. A sound comparison starts from a stated benchmark and ends with the net value actually available after execution and transfer. See transaction costs and slippage.
Custody and settlement across CEX, DEX, and OTC
On a CEX, a balance is first an operator's record until withdrawal; legal rights depend on the contract and applicable rules. On a DEX, the wallet signs, but assets may pass through or remain in contracts with their own rules and privileges. In OTC trading, execution and settlement can be separate and involve different dealers, custodians, escrow arrangements, or wallets.
Within its European Union perimeter, MiCA sets distinct requirements for operating a platform and providing custody, including operating rules, position records, and segregation. Those rules must not be projected onto every service worldwide. Verification always starts from the contractual entity and effective jurisdiction, not the app's brand.
Checks before choosing
- Identify the entity, applicable authorisation or registration, and its role.
- Reconstruct who signs, who has custody, and who can suspend a withdrawal.
- Separate an indicative price, a firm quote, an order, and a fill.
- Add explicit costs, spread, impact, network fees, and the final transfer.
- Verify finality, timing, the asset received, and an exit route.
- Retain confirmations, hashes, timestamps, and transaction terms.
Professional layer: roles, conflicts, and jurisdiction
A professional map uses four axes: venue model, price mechanism, custody, and settlement. Counterparty, data access, priority, capacity, resilience, default management, and conflicts between connected activities must then be added.
IOSCO and the FSB particularly highlight multifunction crypto intermediaries: combining trading, custody, issuance, lending, and proprietary trading may amplify concentration, opacity, and conflicts. The issue does not disappear on a DEX: governance, frontends, validators, and privileged persons may concentrate control. None of the three labels is therefore a safety rating.
Sources
- Bank for International Settlements — DeFi risks and the decentralisation illusion — “The DeFi ecosystem” and “The decentralisation illusion”: CEX off-chain records, on-chain exchange, AMMs, gas, and governance.
- IOSCO — Policy Recommendations for Crypto and Digital Asset Markets: Final Report — chapters 2–3 and recommendations 12–16 (pp. 31–38): crypto-service lifecycle, conflicts, custody, operations, disclosure, and execution.
- IOSCO — Policy Recommendations for Decentralized Finance: Final Report — pp. 23–28 and 36–39: DEX architectures, effective roles, governance, conflicts, and technology risks.
- Financial Stability Board — The Financial Stability Implications of Multifunction Crypto-asset Intermediaries — combined functions, opacity, conflicts, and vulnerability channels.
- ESMA — MiCA, Article 75: Custody and administration of crypto-assets — custody agreements, records, return, segregation, and liability within the EU perimeter.
- ESMA — MiCA, Article 76: Operation of a trading platform for crypto-assets — platform rules, resilience, transparency, fees, order books, and settlement within the EU perimeter.
Related links
Trading venues and order routing · Exchange, broker, dealer, and custodian · Exchange risk · Counterparty risk · Clearing, settlement, and custody · Digital assets and crypto markets · Decentralized finance (DeFi)